UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q10-Q/A
Amendment No. 1
(Mark One)
[ X ]☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended March 31,September 30, 2019
or
[ ]☐ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission File Number 000-53952
(Exact name of registrant as specified in its charter)
Nevada (State or other jurisdiction of incorporation or organization) | 27-2345075 (I.R.S. Employer Identification No.)
|
110 North 5th Street, Suite 410, Minneapolis, Minnesota 55403
(Address of principal executive offices) (Zip Code)
Issuer’s telephone Number:(952) 426-1241
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes | No |
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes | No |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”filer, “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer | |||
Non-accelerated filer | Smaller reporting company | |||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [___]☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes | No |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | ANFC | OTCQB |
The number of shares of registrant’s common stock outstanding as of May 10,November 12, 2019 was 479,844,900.
i |
PART I – FINANCIAL INFORMATION
BLACK RIDGE OIL & GAS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, | December 31, | |||||||
2019 | 2018 | |||||||
ASSETS | (Unaudited) | |||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 826,525 | $ | 1,503,500 | ||||
Accounts receivable | 77 | 13 | ||||||
Prepaid expenses | 100,401 | 53,935 | ||||||
Total current assets | 927,003 | 1,557,448 | ||||||
Property and equipment: | ||||||||
Property and equipment | 128,965 | 128,156 | ||||||
Less accumulated depreciation | (127,374 | ) | (126,931 | ) | ||||
Total property and equipment, net | 1,591 | 1,225 | ||||||
Restricted cash and investments held in trust | 142,027,742 | 141,307,307 | ||||||
Total assets | $ | 142,956,336 | $ | 142,865,980 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 105,906 | $ | 180,452 | ||||
Accrued expenses | 24,371 | 5,691 | ||||||
Income tax payable | 657,989 | 472,770 | ||||||
Deferred taxes | 1,798 | 438 | ||||||
Total current liabilities | 790,064 | 659,351 | ||||||
Total liabilities | 790,064 | 659,351 | ||||||
Commitments and contingencies | – | – | ||||||
Redeemable non-controlling interest | 141,341,003 | 140,738,954 | ||||||
Stockholders' equity: | ||||||||
Preferred stock, $0.001 par value, 20,000,000 shares authorized, no shares issued and outstanding | – | – | ||||||
Common stock, $0.001 par value, 500,000,000 shares authorized, 479,844,900 shares issued and outstanding | 479,845 | 479,845 | ||||||
Additional paid-in capital | 36,503,663 | 36,475,732 | ||||||
Accumulated deficit | (36,158,239 | ) | (35,487,902 | ) | ||||
Total stockholders' equity | 825,269 | 1,467,675 | ||||||
Total liabilities, redeemable non-controlling interest and stockholders' equity | $ | 142,956,336 | $ | 142,865,980 |
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
(Unaudited) | ||||||||
(Restated) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 64,613 | $ | 1,503,500 | ||||
Accounts receivable | – | 13 | ||||||
Receivable from Allied Esports Entertainment, Inc. | 181,211 | – | ||||||
Prepaid expenses | 24,822 | 42,685 | ||||||
Current assets from discontinued operations | – | 11,250 | ||||||
Total current assets | 270,646 | 1,557,448 | ||||||
Property and equipment: | ||||||||
Property and equipment | 128,965 | 128,156 | ||||||
Less accumulated depreciation | (127,685 | ) | (126,931 | ) | ||||
Total property and equipment, net | 1,280 | 1,225 | ||||||
Investment in Allied Esports Entertainment, Inc. | 14,045,165 | – | ||||||
Non-current assets from discontinued operations | – | 141,307,307 | ||||||
Total assets | $ | 14,317,091 | $ | 142,865,980 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 48,419 | $ | 31,938 | ||||
Accrued expenses | 33,827 | 5,691 | ||||||
Deferred Compensation | 2,809,033 | – | ||||||
Current liabilities of discontinued operations | – | 621,722 | ||||||
Total current liabilities | 2,891,279 | 659,351 | ||||||
Long term liabilities | – | – | ||||||
Total liabilities | 2,891,279 | 659,351 | ||||||
Commitments and contingencies | – | – | ||||||
Redeemable non-controlling interest | – | 140,738,954 | ||||||
Stockholders' equity: | ||||||||
Preferred stock, $0.001 par value, 20,000,000 shares authorized, no shares issued and outstanding | – | – | ||||||
Common stock, $0.001 par value, 500,000,000 shares authorized, 479,844,900 shares issued and outstanding | 479,845 | 479,845 | ||||||
Additional paid-in capital | 36,559,437 | 36,475,732 | ||||||
Accumulated deficit | (25,613,470 | ) | (35,487,902 | ) | ||||
Total stockholders' equity | 11,425,812 | 1,467,675 | ||||||
Total liabilities, redeemable non-controlling interest and stockholders' equity | $ | 14,317,091 | $ | 142,865,980 |
See accompanying notes to unaudited condensed consolidated financial statements.
1 |
BLACK RIDGE OIL & GAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months | ||||||||
Ended March 31, | ||||||||
2019 | 2018 | |||||||
Management fee income | $ | – | $ | – | ||||
Total revenues | – | – | ||||||
Operating expenses: | ||||||||
General and administrative expenses | ||||||||
Salaries and benefits | 318,110 | 319,740 | ||||||
Stock compensation | 27,931 | 85,833 | ||||||
Professional services | 101,060 | 84,942 | ||||||
Other general and administrative expenses | 250,284 | 151,881 | ||||||
Total general and administrative expenses | 697,385 | 642,396 | ||||||
Depreciation and amortization | 443 | 2,558 | ||||||
Total operating expenses | 697,828 | 644,954 | ||||||
Net operating loss | (697,828 | ) | (644,954 | ) | ||||
Other income (expense): | ||||||||
Interest income | 811,335 | 417,712 | ||||||
Unrealized gain on marketable securities held in Trust Account | 4,733 | 57,914 | ||||||
Loss on disposal of property and equipment | – | – | ||||||
Other income | 51 | 171 | ||||||
Total other income (expense) | 816,119 | 475,797 | ||||||
Gain (loss) before provision for income taxes | 118,291 | (169,157 | ) | |||||
Provision for income taxes | 186,579 | 94,667 | ||||||
Net loss | (68,288 | ) | (263,824 | ) | ||||
Less net income attributable to redeemable non-controlling interest | (602,049 | ) | (369,205 | ) | ||||
Net loss attributable to Black Ridge Oil & Gas, Inc. | $ | (670,337 | ) | $ | (633,029 | ) | ||
Weighted average common shares outstanding - basic and fully diluted | 479,844,900 | 479,799,900 | ||||||
Net loss per common share - basic and fully diluted | $ | (0.00 | ) | $ | (0.00 | ) |
For the Three Months | For the Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
(Restated) | (Restated) | |||||||||||||||
Management fee income | $ | 153,279 | $ | – | $ | 153,279 | $ | – | ||||||||
Total revenues | 153,279 | – | 153,279 | – | ||||||||||||
Operating expenses: | ||||||||||||||||
General and administrative expenses | ||||||||||||||||
Salaries and benefits | 279,621 | 285,839 | 910,191 | 914,166 | ||||||||||||
Stock-based compensation and deferred compensation | 2,836,920 | 77,901 | 2,892,738 | 244,664 | ||||||||||||
Professional services | 40,287 | 39,348 | 79,978 | 80,001 | ||||||||||||
Other general and administrative expenses | 69,157 | 58,289 | 185,035 | 194,530 | ||||||||||||
Total general and administrative expenses | 3,225,985 | 461,377 | 4,067,942 | 1,433,361 | ||||||||||||
Depreciation and amortization | 131 | 2,535 | 754 | 7,650 | ||||||||||||
Total operating expenses | 3,226,116 | 463,912 | 4,068,696 | 1,441,011 | ||||||||||||
Net operating loss | (3,072,837 | ) | (463,912 | ) | (3,915,417 | ) | (1,441,011 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Gain on deconsolidation of subsidiary | 26,322,687 | – | 26,322,687 | – | ||||||||||||
Merger incentive expense | (5,874,000 | ) | – | (5,874,000 | ) | – | ||||||||||
Settlement income | – | 2,250,000 | – | 2,250,000 | ||||||||||||
Settlement expense | – | (112,500 | ) | – | (112,500 | ) | ||||||||||
Other income | – | 200 | 51 | 940 | ||||||||||||
Gain on investment in Allied Esports Entertainment, Inc. | 2,094,690 | – | 2,094,690 | – | ||||||||||||
Total other income (expense) | 22,543,377 | 2,137,700 | 22,543,428 | 2,138,440 | ||||||||||||
Net profit before provision for income taxes | 19,470,540 | 1,673,788 | 18,628,011 | 697,429 | ||||||||||||
Provision for income taxes | – | – | – | – | ||||||||||||
Net profit from continuing operations, net of tax | 19,470,540 | 1,673,788 | 18,628,011 | 697,429 | ||||||||||||
Net profit (loss) from discontinued operations | (8,152,165 | ) | 442,487 | (7,421,050 | ) | 1,078,489 | ||||||||||
Net profit before non-controlling interest | 11,318,375 | 2,116,275 | 11,206,961 | 1,775,918 | ||||||||||||
Less net profit attributable to redeemable non-controlling interest | (142,919 | ) | (513,240 | ) | (1,332,529 | ) | (1,337,487 | ) | ||||||||
Net income attributable to Black Ridge Oil & Gas, Inc. | $ | 11,175,456 | $ | 1,603,035 | $ | 9,874,432 | $ | 438,431 | ||||||||
Weighted average common shares outstanding - basic | 479,844,900 | 479,821,911 | 479,844,900 | 479,807,318 | ||||||||||||
Weighted average common shares outstanding - fully diluted | 480,089,919 | 480,042,964 | 480,118,829 | 480,045,271 | ||||||||||||
Net income per common share - basic | $ | 0.02 | $ | – | $ | 0.02 | $ | – | ||||||||
Net income per common share - fully diluted | $ | 0.02 | $ | – | $ | 0.02 | $ | – |
See accompanying notes to unaudited condensed consolidated financial statements.
2 |
BLACK RIDGE OIL & GAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’STOCKHOLDERS' EQUITY
(Unaudited)
Additional | Total | |||||||||||||||||||
Common Stock | Paid-in | Retained | Stockholders' | |||||||||||||||||
Shares | Amount | Capital | Earnings | Equity | ||||||||||||||||
Balance, January 1, 2018 | 479,799,900 | $ | 479,800 | 36,164,596 | (35,143,888 | ) | 1,500,508 | |||||||||||||
Common stock options granted for services to employees and directors | – | – | 85,833 | – | 85,833 | |||||||||||||||
Net income | – | – | – | (633,029 | ) | (633,029 | ) | |||||||||||||
Balance, March 31, 2018 | 479,799,900 | $ | 479,800 | $ | 36,250,429 | $ | (35,776,917 | ) | $ | 953,312 | ||||||||||
Balance, January 1, 2019 | 479,844,900 | $ | 479,845 | 36,475,732 | (35,487,902 | ) | 1,467,675 | |||||||||||||
Common stock options granted for services to employees and directors | – | – | 27,931 | – | 27,931 | |||||||||||||||
Net income | – | – | – | (670,337 | ) | (670,337 | ) | |||||||||||||
Balance, March 31, 2019 | 479,844,900 | $ | 479,845 | $ | 36,503,663 | $ | (36,158,239 | ) | $ | 825,269 |
Additional | Total | |||||||||||||||||||
Common Stock | Paid-in | Accumulated | Stockholders' | |||||||||||||||||
Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
Balance, July 1, 2018 | 479,799,900 | $ | 479,800 | $ | 36,331,360 | $ | (36,308,492 | ) | $ | 502,668 | ||||||||||
Common stock options granted for services to employees and directors | – | – | 77,901 | – | 77,901 | |||||||||||||||
Exercise of warrants | 45,000 | 45 | 405 | – | 450 | |||||||||||||||
Net income attributable to Black Ridge Oil & Gas, Inc. | – | – | – | 1,603,035 | 1,603,035 | |||||||||||||||
Balance, September 30, 2018 | 479,844,900 | $ | 479,845 | $ | 36,409,666 | $ | (34,705,457 | ) | $ | 2,184,054 |
Additional | Total | |||||||||||||||||||
Common Stock | Paid-in | Accumulated | Stockholders' | |||||||||||||||||
Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
Balance, July 1, 2019 | 479,844,900 | $ | 479,845 | $ | 36,531,550 | $ | (36,788,926 | ) | $ | 222,469 | ||||||||||
Common stock options granted for services to employees and directors | – | – | 27,887 | – | 27,887 | |||||||||||||||
Net income attributable to Black Ridge Oil & Gas, Inc. | – | – | ��� | 11,175,456 | 11,175,456 | |||||||||||||||
Balance, September 30, 2019 (Restated) | 479,844,900 | $ | 479,845 | $ | 36,599,437 | $ | (25,613,470 | ) | $ | 11,425,812 |
Additional | Total | |||||||||||||||||||
Common Stock | Paid-in | Accumulated | Stockholders' | |||||||||||||||||
Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
Balance, January 1, 2018 | 479,799,900 | $ | 479,800 | $ | 36,164,597 | $ | (35,143,888 | ) | $ | 1,500,509 | ||||||||||
Common stock options granted for services to employees and directors | – | – | 244,664 | – | 244,664 | |||||||||||||||
Exercise of warrants | 45,000 | 45 | 405 | – | 450 | |||||||||||||||
Net income attributable to Black Ridge Oil & Gas, Inc. | – | – | – | 438,431 | 438,431 | |||||||||||||||
Balance, September 30, 2018 | 479,844,900 | $ | 479,845 | $ | 36,409,666 | $ | (34,705,457 | ) | $ | 2,184,054 |
Additional | Total | |||||||||||||||||||
Common Stock | Paid-in | Accumulated | Stockholders' | |||||||||||||||||
Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
Balance, January 1, 2019 | 479,844,900 | $ | 479,845 | $ | 36,475,732 | $ | (35,487,902 | ) | $ | 1,467,675 | ||||||||||
Common stock options granted for services to employees and directors | – | – | 83,705 | – | 83,705 | |||||||||||||||
Net income attributable to Black Ridge Oil & Gas, Inc. | – | – | – | 9,874,432 | 9,874,432 | |||||||||||||||
Balance, September 30, 2019 (Restated) | 479,844,900 | $ | 479,845 | $ | 36,559,437 | $ | (25,613,470 | ) | $ | 11,425,812 |
See accompanying notes to unaudited condensed consolidated financial statements.
3 |
BLACK RIDGE OIL & GAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months | ||||||||
Ended September 30, | ||||||||
2019 | 2018 | |||||||
(Restated) | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income attributable to Black Ridge Oil & Gas, Inc. | $ | 9,874,432 | $ | 438,431 | ||||
Net loss (profit) from discontinued operations | 7,421,050 | (1,078,489 | ) | |||||
Net income attributable to redeemable non-controlling interest | 1,332,529 | 1,337,487 | ||||||
Adjustments to reconcile net loss attributable to Black Ridge Oil & Gas, Inc. to net cash provided by (used in) operating activities: | ||||||||
Gain on deconsolidation of subsidiary | (26,322,687 | ) | – | |||||
Merger incentive expense | 5,874,000 | – | ||||||
Depreciation and amortization | 754 | 7,650 | ||||||
Gain on investment in Allied Esports Entertainment, Inc. | (2,094,690 | ) | – | |||||
Amortization of stock options | 83,705 | 244,664 | ||||||
Deferred compensation | 2,809,033 | – | ||||||
Decrease (increase) in current assets: | ||||||||
Accounts receivable | 13 | 1,611 | ||||||
Accounts receivable, related party | (181,211 | ) | – | |||||
Prepaid expenses | 17,863 | (9,417 | ) | |||||
Increase (decrease) in current liabilities: | ||||||||
Accounts payable | 16,481 | (15,486 | ) | |||||
Accrued expenses | 28,136 | 12,074 | ||||||
Net cash provided by (used in) operating activities of continuing operations | (1,140,592 | ) | 938,525 | |||||
Net cash used in operating activities of discontinued operations | (8,618,568 | ) | (465,159 | ) | ||||
Net cash provided by (used in) operating activities | (9,759,160 | ) | 473,366 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Cash disposed in deconsolidation | (9,991,684 | ) | – | |||||
Purchase of property and equipment | (809 | ) | – | |||||
Net cash used in investing activities of continuing operations | (9,992,493 | ) | – | |||||
Net cash provided by investing activities of discontinued operations | 16,880,792 | 187,773 | ||||||
Net cash provided by investing activities | 6,888,299 | 187,773 | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from exercise of stock warrants | – | 450 | ||||||
Net cash provided by financing activities from continuing operations | – | 450 | ||||||
Net cash provided by financing activities from discontinued operations | 1,431,974 | – | ||||||
Net cash provided by financing activities from continuing operations | 1,431,974 | 450 | ||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | (1,438,887 | ) | 661,589 | |||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 1,503,500 | 1,477,089 | ||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 64,613 | $ | 2,138,678 | ||||
SUPPLEMENTAL INFORMATION: | ||||||||
Interest paid | $ | – | $ | – | ||||
Income taxes paid | $ | 751,630 | $ | 148,489 | ||||
NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Recognition of subsidiary equity upon deconsolidation | $ | 8,498,212 | $ | – | ||||
BRAC Redemptions of redeemable preferred stock from trust account | $ | 126,205,985 | $ | – | ||||
BRAC redeemable preferred stock transferred to equity | $ | 15,865,798 | $ | – | ||||
BRAC stock issued in merger | $ | 51,632,255 | $ | – | ||||
BRAC stock issued to settle intercompany debt | $ | 19,300,000 | $ | – | ||||
BRAC loan and accrued interest assumed to settle intercompany debt | $ | 10,992,877 | $ | – | ||||
BRAC stock issued to settle liabilities | $ | 5,917,500 | $ | – |
For the Three Months | ||||||||
Ended March 31, | ||||||||
2019 | 2018 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss attributable to Black Ridge Oil & Gas, Inc. | $ | (670,337 | ) | $ | (633,029 | ) | ||
Adjustments to reconcile net loss attributed to Black Ridge Oil & Gas, Inc. to net cash used in operating activities: | ||||||||
Interest income | (811,335 | ) | (417,712 | ) | ||||
Unrealized gain on marketable securities held in Trust Account | (4,733 | ) | (57,914 | ) | ||||
Net income attributable to redeemable non-controlling interest | 602,049 | 369,205 | ||||||
Depreciation and amortization | 443 | 2,558 | ||||||
Common stock options issued to employees and directors | 27,931 | 85,833 | ||||||
Deferred taxes | 1,360 | 16,646 | ||||||
Decrease (increase) in current assets: | ||||||||
Accounts receivable | (64 | ) | 1,041 | |||||
Prepaid expenses | (46,466 | ) | (25,667 | ) | ||||
Increase (decrease) in current liabilities: | ||||||||
Accounts payable | (74,546 | ) | 65,549 | |||||
Accrued expenses | 18,680 | 14,519 | ||||||
Income taxes payable | 185,219 | 78,021 | ||||||
Net cash used in operating activities | (771,799 | ) | (500,950 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Withdrawal from Trust Account to pay for taxes and franchise fees | 95,633 | – | ||||||
Purchase of property and equipment | (809 | ) | – | |||||
Net cash provided by investing activities | 94,824 | – | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Net cash provided by financing activities | – | – | ||||||
NET CHANGE IN CASH | (676,975 | ) | (500,950 | ) | ||||
CASH AT BEGINNING OF PERIOD | 1,503,500 | 1,477,089 | ||||||
CASH AT END OF PERIOD | $ | 826,525 | $ | 976,139 | ||||
SUPPLEMENTAL INFORMATION: | ||||||||
Interest paid | $ | – | $ | – | ||||
Income taxes paid | $ | – | $ | – |
See accompanying notes to unaudited condensed consolidated financial statements.
4 |
BLACK RIDGE OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Restated)
Note 1 – Organization and Nature of Business
Effective April 2, 2012, Ante5, Inc. changed its corporate name to Black Ridge Oil & Gas, Inc., and continues to be quoted on the OTCQB under the trading symbol “ANFC”. Black Ridge Oil & Gas, Inc. (formerly Ante5, Inc.) (the “Company” and “BROG”) became an independent company in April 2010. We became a publicly traded company when our shares began trading on July 1, 2010. SinceFrom October 2010 through August 2019, we had been engaged in the business of acquiring oil and gas leases and participating in the drilling of wells in the Bakken and Three Forks trends in North Dakota and Montana.
The Company is focused on acquiring, investing in,Montana and /or managing the oil and gassimilar assets for our partners. We continue to pursue asset acquisitions in all major onshore unconventional shale formations that may be acquired with capital from our existing joint venture partners or other capital providers.third parties.
On September 26, 2017, the Company finalized an equity raise utilizing a rights offering and backstop agreement, raising net proceeds of $5,051,675 and issuing 431,819,910 shares. The proceeds were used to sponsor the Company’s obligations sponsoring a special purpose acquisition company, discussed below, with the remainder for general corporate purposes.
On October 10, 2017, the Company’s sponsored special purpose acquisition company, Black Ridge Acquisition Corp. (“BRAC”), completed an initial public offering (“IPO”)IPO raising $138,000,000 of gross proceeds (including proceeds from the exercise of an over-allotment option by the underwriters on October 18, 2017). In addition, the Company purchased 445,000 BRAC units at $10.00 per unit in a private placement transaction for a total contribution of $4,450,000 in order to fulfill its obligations in sponsoring BRAC.BRAC,BRAC is a blank check company formed for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities. BRAC’s efforts to identify a prospective target business willwere not be limited to a particular industry or geographic region, although it intends tobut the initial focus of its search was for target businesses in the energy or energy-related industries with an emphasis on opportunities in the upstream oil and gas industry in North America. Following the initial public offeringIPO and over-allotment, the Company ownsBROG owned 22% of the outstanding common stock of BRAC and managesmanaged BRAC’s operations via a management services agreement.
On December 19, 2018, BRAC entered into a business combination agreement and the business combination closed on August 9, 2019, as discussed in Note 5.
Following the close of the business combination the Company commenced a strategic review to identify, review and explore alternatives for the Company, including a merger, acquisition, or a business combination. The Company currently owns 2,685,500 shares of Allied Esports Entertainment, Inc. (NASDAQ: AESE), the surviving entity after BRAC’s business combination (“Sponsor Shares”). 537,100 of the Sponsor Shares are subject to distribution rights to officers and directors under the 2018 Management Incentive Plan dated March 6, 2018. The Company is evaluating plans for the remaining Sponsor Shares which could include a distribution of some or all of the Sponsor Share proceeds after expiration of the lock-up agreement on August 9, 2020.
Note 2 – Basis of Presentation and Significant Accounting Policies
The interim condensed consolidated financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to not make the information presented misleading.
These statements reflect all adjustments, which in the opinion of management, are necessary for fair presentation of the information contained therein. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. It is suggested that these interim condensed financial statements be read in conjunction with the audited financial statements for the year ended December 31, 2018, which were included in our Annual Report on Form 10-K. The Company follows the same accounting policies in the preparation of interim reports.
5 |
BLACK RIDGE OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Restated)
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the following entities:
Name of entity | State of Incorporation | Relationship | ||||||
Black Ridge Oil and Gas, Inc. | Nevada | Parent | ||||||
Black Ridge Acquisition Corp. | Delaware | Subsidiary(1) |
(1)Wholly-owned subsidiary through October 10, 2017, the date of BRAC’s IPO, followingafter which it iswas consolidated as a variable interest entity.entity through August 9, 2019, the date of BRAC’s business combination. BRAC was renamed Allied Esports Entertainment, Inc. (‘AESE”) on the date of its business combination and all references to the surviving entity following the business combination are hereafter referred to as such.
The Company hashad determined that BRAC,AESE, following its IPO, iswas a variable interest entity (“VIE”) and that the Company iswas the primary beneficiary of the VIE. The Company determined that, due to the redemption feature associated with the IPO shares, that the IPO shareholders arewere indirectly protected from the operating expenses of BRAC and it hashad the power to direct the activities of BRAC through the date at which BRAC affordsafforded the stockholders the opportunity to vote to approve athe proposed business combination. Therefore, theseBRAC’s operations are included in the BROG’s consolidated financial statements herein contain the operations of BRAC from its inception on Maythrough August 9 2017.2019. BRAC’s IPO shareholders are reflected in our Consolidated Financial Statements as a non-controlling interest. The non-controlling interest through BRAC’s business combination on August 9, 2019. Under guidance in ASC 810-10-05-8 (“Consolidation of VIEs”) the Company’s management has determined that BRAC, following its merger, should no longer be consolidated for financial statement purposes as the Company no longer had the power to direct the activities of BRAC. Following BRAC’s business combination, the Company’s investment in AESE is accounted for using the cost method as AESE no longer was recorded at fair value on October 10, 2017, with an addition on October 18, 2017 asconsidered a resultVIE and the Company now owned 12.4% of the underwriters’ exerciseoutstanding common stock of their over-allotment option.AESE. All significant inter-company transactions have been eliminated in the preparation of these financial statements.
The parent company, Black Ridge Oil & Gas, Inc.BROG, and Black Ridge Acquisition Corp. will beBRAC, for the period it was consolidated, are collectively referred to herein as the “Company” or “Black Ridge”. The Company’s headquarters is in Minneapolis, Minnesota and substantially all of its operations are in the United States.
Reclassifications
In the current year, the income, expense and cash flows from BRAC during the period they were consolidated have been classified as discontinued operations. For comparative purposes amounts in the prior periods have been reclassified to conform to current year presentation. Additionally, the assets and liabilities from BRAC are shown on the balance sheet as assets and liabilities for discontinued operations.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Environmental Liabilities
The Company was formerly a direct owner of assets in the oil and gas industry. The oil and gas industry is subject, by its nature, to environmental hazards and clean-up costs. At this time, management knows of no substantial losses from environmental accidents or events which would have a material effect on the Company.
Cash and Cash Equivalents
Cash equivalents include money market accounts which have maturities of three months or less. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. Cash equivalents are stated at cost plus accrued interest, which approximates market value. Cash equivalents on hand at March 31,September 30, 2019 and December 31, 2018 were $638,654$-0- and $2,312, respectively, all held within the trust account.respectively.
6 |
BLACK RIDGE OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Restated)
Restricted cashCash and securitiesSecurities held in Trust Account
The Company had $638,654 of cash equivalents and $141,389,088 of marketable securities on March 31, 2019 and $2,312 of cash equivalents and $141,304,995 of marketable securities on December 31, 2018 held in the Trust Account which iswas restricted for the benefit of the BRAC’sAESE’s IPO shareholders to be available for those shareholders in the event they electelected to redeem their shares following an approved business combination or upon the dissolution of BRAC.combination.
Cash in Excess of FDIC Insured Limits
The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) and the Securities Investor Protection Corporation (SIPC) up to $250,000 and $500,000, respectively, under current regulations. The Company had approximately $520,305$-0- and $1,119,770 in excess of FDIC and SIPC insured limits at March 31,September 30, 2019 and December 31, 2018, respectively. The Company has not experienced any losses in such accounts.
Income Taxes
The Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.
Basic and Diluted Loss Per Share
The basic net loss per share is computed by dividing the net loss (the numerator) by the weighted average number of common shares outstanding for the period (the denominator). Diluted net loss per common share is computed by dividing the net loss by the weighted average number of common shares and potential common shares outstanding (if dilutive) during each period. Potential common shares include stock options, warrants and restricted stock. The number of potential common shares outstanding relating to stock options, warrants and restricted stock is computed using the treasury stock method. For
The reconciliation of the periods presented, potential dilutive securities had an anti-dilutive effectdenominators used to calculate basic EPS and were not included indiluted EPS for the three and nine months ended September 30, 2019 and 2018 are as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Weighted average common shares outstanding – basic | 479,844,900 | 479,821,911 | 479,844,900 | 479,807,318 | ||||||||||||
Plus: Potentially dilutive common shares: | ||||||||||||||||
Stock options and warrants | 245,019 | 221,053 | 273,929 | 237,953 | ||||||||||||
Weighted average common shares outstanding – diluted | 480,089,919 | 480,042,964 | 480,118,829 | 480,045,271 |
Stock options and warrants excluded from the calculation of diluted net loss per common share.EPS because their effect was anti-dilutive were 10,646,500 and 10,835,300 for the three months ended September 30, 2019 and 2018, respectively, and 10,646,500 and 10,835,300 for the nine months ended September 30, 2019 and 2018, respectively.
Fair Value of Financial Instruments
Under FASB ASC 820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, accounts payable and accrued expenses reported on the balance sheets are estimated by management to approximate fair value primarily due to the short termshort-term nature of the instruments. The Company had no items that required fair value measurement on a recurring basis.
7 |
BLACK RIDGE OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Restated)
Property and Equipment
Property and equipment that are not oil and gas properties are recorded at cost and depreciated using the straight-line method over their estimated useful lives of three to seven years. Expenditures for replacements, renewals, and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Long-lived assets other than oil and gas properties, are evaluated for impairment to determine if current circumstances and market conditions indicate the carrying amount may not be recoverable. The Company has not recognized any impairment losses on non-oil and gas long-lived assets. Depreciation expense was $443$754 and $2,558$7,650 for the threenine months ended March 31,September 30, 2019 and 2018, respectively.
Revenue Recognition
The Company recognizes management fee income as services are provided.
BLACK RIDGE OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Stock-Based Compensation
The Company adopted FASB guidance on stock basedstock-based compensation upon inception at April 9, 2010. Under FASB ASC 718-10-30-2, all share-based payments to employees, including grants of employee stock options, are recognized in the income statement based on their fair values. Expense related to common stock and stock options issued for services and compensation totaled $27,931$83,705 and $85,833$244,664 for the threenine months ended March 31,September 30, 2019 and 2018, respectively, using the Black-Scholes options pricing model and an effective term of 6 to 6.5 years based on the weighted average of the vesting periods and the stated term of the option grants and the discount rate on 5 to 7 year U.S. Treasury securities at the grant date.
Uncertain Tax Positions
Effective upon inception at April 9, 2010, the Company adopted standards for accounting for uncertainty in income taxes. These standards prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. These standards also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
Various taxing authorities may periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions. In evaluating the exposures connected with these various tax filing positions, including state and local taxes, the Company records allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established, is audited and fully resolved. Black Ridge Oil & Gas, Inc. has not yet undergone an examination by any taxing authorities.
The assessment of the Company’s tax position relies on the judgment of management to estimate the exposures associated with the Company’s various filing positions.
Recent Accounting Pronouncements
New accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that are adopted by the Company as of the specified effective date. If not discussed below, management believes there have been no developments to recently issued accounting standards, including expected dates of adoption and estimated effects on our financial statements, from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.
8 |
BLACK RIDGE OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Restated)
In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases. The amendments in ASU 2018-10 provide additional clarification and implementation guidance on certain aspects of the previously issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) and have the same effective and transition requirements as ASU 2016-02. Upon the effective date, ASU 2018-10 will supersede the current lease guidance in ASC Topic 840, Leases. Under the new guidance, lessees will be required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees will be required to recognize a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2018-10 is effective for private companies and emerging growth public companies for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements. The Company adopted this guidance effective January 1, 2019, and the standard did not have a material impact on the Company’s combined financial statements and related disclosures.
In January 2016, the FASB issued ASU 2016-01,Financial Instruments. The amendments in this Update supersede the guidance to classify equity securities with readily determinable fair values into different categories and require equity securities to be measured at fair value with changes in the fair value recognized through net income. The amendments allow equity investments that do not have readily determinable fair values to be remeasured at fair value either upon the occurrence of an observable price change or upon identification of impairment. The amendments in this Update also simplify the impairment assessment of equity investments without readily determinable fair values by requiring assessment for impairment qualitatively at each reporting period. In addition, the amendments in this Update exempt all entities that are not public business entities from disclosing fair value information for financial instruments measured at amortized cost. In addition, for public business entities, the amendments supersede the requirement to disclose the methods and significant assumptions used in calculating the fair value of financial instruments required to be disclosed for financial instruments measured at amortized cost on the balance sheet. The amendments in this Update require public business entities that are required to disclose fair value of financial instruments measured at amortized cost on the balance sheet to measure that fair value using the exit price notion consistent with Topic 820, Fair Value Measurement. In February 2018, the FASB issued ASU 2018-03,Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this Update include items brought to the FASB Board’s attention regarding ASU 2016-01.
The provisions within this Update require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option. This amendment excludes from net income gains or losses that the entity may not realize because those financial liabilities are not usually transferred or settled at their fair values before maturity. The amendments in this Update require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or in the accompanying notes to the financial statements.
For public business entities, the amendments in ASU 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this standard had a material impact on the Company’s consolidated financial statements beginning in the year ended December 31, 2019.
9 |
BLACK RIDGE OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Restated)
Note 3 – Going Concern
As shown in the accompanying financial statements, as of March 31,September 30, 2019, the Company had an unrestricteda cash balance of $826,525$64,613 and total working capital of $136,939. Liabilities including current income taxes and franchisenegative $2,620,633. The Company’s management consulting agreement with AESE calls for management fees of BRAC totaling $686,789 may be paid out of the Trust Account Assets. The Company has no revenue source presently.$313,316 from October 1, 2019 through December 31, 2019 and does not continue into 2020. Based on projections of cash expenditures in the Company’s current business plan, the cash on hand would be insufficient to fund the Company’s general and administrative expenses over the next year.
The Company continues to pursue sources of additional capital through various management fee agreements and financing transactions or arrangements, including joint venturing of projects, equity financing, debt financing or other means. We may not be successful in identifying suitable funding transactions in a sufficient time period or at all, and we may not obtain the capital we require by other means. If we do not succeed in raising additional capital, our resources may not be sufficient to fund our business.
BLACK RIDGE OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. These financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 4 – Rights Offering and Formation of Black Ridge Acquisition Corp.
The Company filed a Registration Statement on Form S-1 (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”) to register the issuance of 431,819,910 shares of common stock in the Rights Offering that was declared effective by the SEC on August 3, 2017. Pursuant to the Rights Offering, the Company distributed, on a pro rata basis, one right for each share of common stock owned by shareholders on August 2, 2017 (the “Record Date”). Each right permitted a shareholder to purchase up to nine shares of common stock at a subscription price of $0.012 per share. The Rights Offering expired on September 8, 2017 (the “Expiration Date”).
In connection with the Rights Offering, the Company also entered into a Standby Purchase Agreement (the “Backstop Agreement”) with a consortium of investors, including members of the Company’s board of directors and our Chief Executive Officer (collectively, the “Backstop Purchasers”), who agree to purchase up to $2.9 million of the unsubscribed shares following the completion of the rights offering.
On September 26, 2017, the Company completed the Rights Offering, raising gross proceeds of $5,181,839 and issued 431,819,910 shares in connection with the exercise of rights in connection with the Rights Offering and related Backstop Agreement. Under the Rights Offering the Company’s current shareholders exercised rights to purchase 199,811,421 shares of stock for a total of $2,397,737. Under the Backstop Agreement, the Backstop Purchasers purchased 232,008,489 shares of stock for a total of $2,784,102. Additionally, as part of the Backstop agreement, the Company issued 435,000 warrants to purchase its common stock at $0.01 to participants in the Backstop Agreement. The warrants fair value was estimated to be $10,135. Officers and directors of the Company purchased 173,843,308 shares between the Rights Offering and as participants of the Backstop Agreement for $2,086,120 and received 179,376 warrants to purchase shares of common stock at $0.01 per share for their participation in the Backstop Agreement. The remaining 257,976,602 shares were purchased by non-related parties for proceeds of $2,965,555. The fair value of warrants issued to related parties fair value was estimated to be $4,179. The Company incurred $130,164 in costs associated with raising capital, which has been netted against stockholders’ equity.
On October 10, 2017 and October 18, 2017, in connection with the underwriter exercising its over-allotment option, the Company used $4,450,000 of the net proceeds of the Rights Offering to fulfill its obligation as sponsor of BRAC, as part of BRAC’s IPO. BRAC was formed on May 9, 2017 with the purpose of becoming the special acquisition company as a wholly owned subsidiary of the Company with an initial equity contribution of $25,000. After the IPO, the Company retained ownership of 22% of BRAC’s common stock. The remaining proceeds from the Rights Offering following the sponsorship are being used for general corporate purposes.
10 |
BLACK RIDGE OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Restated)
Note 5 – BRAC’s IPO, BRAC’s Merger, Consolidation of BRAC and Non-controlling Interest
BRAC’s IPO
The registration statement for the BRAC’s IPO was declared effective on October 4, 2017. The registration statement was initially declared effective for 10,000,000 units (“Units” and, with respect to the common stock included in the Units being offered, the “Public Shares”), but the offering was increased to 12,000,000 Units pursuant to Rule 462(b) under the Securities Act of 1933, as amended. On October 10, 2017, the CompanyBRAC consummated the Initial Public OfferingIPO of 12,000,000 units, generating gross proceeds of $120,000,000.
BLACK RIDGE OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Simultaneous with the closing of the Initial Public Offering,IPO, BRAC sold 400,000 units (the “Placement Units”) at a price of $10.00 per Unit in a private placement to BROG, generating gross proceeds of $4,000,000. BROG’s investment in BRAC’s common stock is eliminated in consolidation.consolidation prior to the BRAC’s merger on August 9, 2019.
Transaction costs relating to the IPO amounted to $2,882,226, consisting of $2,400,000 of underwriting fees and $482,226 of other costs.
Following the closing of the IPO on October 10, 2017, an amount of $120,600,000 ($10.05 per Unit) from the net proceeds of the sale of the Units in the IPO and the Placement Units was placed in a trust account (“Trust Account”) and is invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the CompanyBRAC meeting the conditions of paragraphs (d)(2), (d)(3) and (d)(4) of Rule 2a-7 of the Investment Company Act, as determined by the Company,BRAC, until the earlier of: (i) the consummation of a Business Combination or (ii) the distribution of the Trust Account, as described below.
On October 18, 2017, in connection with the underwriters’ exercise of their over-allotment option in full, BRAC sold an additional 1,800,000 Units and sold an additional 45,000 Placement Units to BROG at $10.00 per Unit, generating total proceeds of $18,450,000. Transaction costs for underwriting fees on the sale of the over-allotment units were $360,000. Following the closing, an additional $18,090,000 of the net proceeds ($10.05 per Unit) was placed in the Trust Account, bringing the total aggregate proceeds held in the Trust Account to $138,690,000 ($10.05 per Unit). BROG’s investment in BRAC’s common stock is eliminated in consolidation.consolidation prior to the BRAC’s merger on August 9, 2019.
BRAC’s management has broad discretion with respect to the specific application of the net proceeds of the IPO and private placement, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There is no assurance that the BRAC will be able to complete a Business Combination successfully. Upon the closing of the IPO, $10.05 per Unit sold in the IPO, including some of the proceeds of the Private Placements was deposited in a trust account (“Trust Account”) to be held until the earlier of (i) the consummation of its initial Business Combination or (ii) BRAC’s failure to consummate a Business Combination within 21 months from the consummation of the IPO (the “Combination Period”). Placing funds in the Trust Account may not protect those funds from third party claims against BRAC. Although BRAC will seek to have all vendors, service providers, prospective target businesses or other entities it engages, execute agreements with BRAC waiving any claim of any kind in or to any monies held in the Trust Account, there is no guarantee that such persons will execute such agreements. The Trust Account is maintained by a third party trustee. The remaining net proceeds (not held in the Trust Account) may be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. Additionally, the interest earned on the Trust Account balance may be released to BRAC for any amounts that are necessary to pay BRAC’s income and other tax obligations and up to $50,000 that may be used to pay for the costs of liquidating BRAC. BROG has agreed that it will be liable to ensure that the proceeds in the Trust Account are not reduced below $10.05 per share by the claims of target businesses or claims of vendors or other entities that are owed money by BRAC for services rendered or contracted for or products sold to BRAC, but there is no assurance that BROG will be able to satisfy its indemnification obligations if it is required to do so. Additionally, the agreement entered into by BROG specifically provides for two exceptions to the indemnity it has given: it will have no liability (1) as to any claimed amounts owed to a target business or vendor or other entity who has executed an agreement with BRAC waiving any right, title, interest or claim of any kind they may have in or to any monies held in the Trust Account, or (2) as to any claims for indemnification by the underwriters of the IPO against certain liabilities, including liabilities under the Securities Act of 1933, as amended.
Initial Business CombinationThe Extension Meeting
Pursuant to the Nasdaq Capital Markets listing rules, BRAC’s initial Business Combination must be withOn July 9, 2019, BRAC held a target business or businesses whose collective fair market value is at least equal to 80% of the balance in the Trust Account at the time of the execution of a definitive agreement for such Business Combination, although this may entail simultaneous acquisitions of several target businesses. The fair market value of the target will be determined by BRAC’s board of directors based upon one or more standards generally accepted by the financial community (such as actual and potential sales, earnings, cash flow and/or book value). The target business or businesses that BRAC acquires may have a collective fair market value substantially in excess of 80% of the Trust Account balance. In order to consummate such a Business Combination, BRAC may issue a significant amountspecial meeting of its debt or equity securitiesstockholders (the “Meeting”). At the Meeting, BRAC’s stockholders considered a proposal to the sellers of such business and/or seekadopt and approve an amendment to raise additional funds through a private offering of debt or equity securities. If BRAC’s securities are not listed on NASDAQ after the IPO, BRAC would not be required to satisfy the 80% requirement. However, BRAC intends to satisfy the 80% requirement even if BRAC’s securities are not listed on NASDAQ at the time of the initial Business Combination.
BLACK RIDGE OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
BRAC will provide the public stockholders, who are the holders of the common stock which was sold as part of the Units in the IPO, whether they are purchased in the IPO or in the aftermarket, or “Public Shares”, including BROG to the extent that it purchases such Public Shares (“Public Stockholders”), with an opportunity to redeem all or a portion of their Public Shares of BRAC’s Common stock, irrespective of whether they vote for or against the proposed transaction or if BRAC conducts a tender offer, upon the completion of the initial Business Combination either (1) in connection with a stockholder meeting called to approve the Business Combination, or (ii) by means of a tender offer, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest (net of franchise and income taxes payable, divided by the number of then outstanding Public Shares. The amount in the Trust Account, net of franchise and income taxes payable, currently amounts to $10.24 per Public Share. BRAC will proceed with a Business Combination only if BRAC has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and in the case of a stockholder vote, a majority of the outstanding shares voted are voted in favor of the Business Combination. The decision as to whether BRAC will seek stockholder approval of a proposed Business Combination or conduct a tender offer will be made by BRAC, solely in its discretion, based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would otherwise require it to seek stockholder approval under the law or stock exchange listing requirement. If a stockholder vote is not required and BRAC decides not to hold a stockholder vote for business or other legal reasons, BRAC will, pursuant to the proposed amended and restated certificate of incorporation (i) conduct(the “Charter”) to extend the redemptions pursuantdate that BRAC had to Rule 13e-4consummate a business combination (the “Extension”) to August 10, 2019. The amendment was approved by the stockholders and Regulation 14Efiled with the Secretary of State of the Exchange Act, which regulate issuer tender offers, and (ii) file tender offer documents with the SEC prior to completing the initial Business Combination which contain substantially the same financial and other information about the initial Business Combination and the redemption rights as is required under Regulation 14AState of the Exchange Act, which regulates the solicitation of proxies.Delaware on July 9, 2019.
BROG has agreedIn connection with this vote, the holders of 9,246,727 shares of BRAC’s common stock properly exercised their right to vote its Founder Shares and any Public Shares purchased during or after the IPOconvert their shares into cash at a conversion price of approximately $10.29 per share resulting in favor of the initial Business Combination, and BRAC’s executive officers and directors have also agreed$95,125,574 in Trust Account assets being distributed back to vote any Public Shares purchased during or after the IPO in favor of the Initial Business Combination. BROG entered into a letter agreement, pursuant to which it agreed to waive its redemption rights with respect to the Founder Shares, shares included in the Placement Units and Public Shares inshareholders. In connection with the completion of the initial Business Combination. In addition,Extension, BROG has agreedloaned $30,000 to waive its rightsBRAC to liquidating distributions from the Trust Account with respect to the Founder Shares and shares included in the Placement Units if BRAC fails to complete the initial Business Combination within the prescribed time frame. However, if BROG (or any of BRAC’s executive officers, directors or affiliates) acquires Public Shares in or after the IPO, it will be entitled to liquidating distributions from the Trust Account with respect to such Public Shares in the event BRAC does not complete the initial Business Combination within such applicable time period.
Proposed Business Combination
On December 19, 2018, BRAC entered into a business combination agreement (the “Business Combination Agreement”) with Allied Esports Entertainment, Inc. (“Allied Esports”), Ourgame International Holdings Ltd. (“Ourgame”), Noble Link Global Limited, a wholly-owned subsidiary of Ourgame (“Noble”), and Primo Vital Ltd., also a wholly-owned subsidiary of Ourgame (“Primo”), pursuant to which BRAC will acquire two of Ourgame’s global esports and entertainment assets, Allied Esports International, Inc. (“Allied Esports”) and WPT Enterprises, Inc. (“WPT”) . See Note 16.
Failure to Consummate a Business Combination
If BRAC is unable to complete the initial Business Combination within the Combination Period, BRAC must: (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on depositplaced in the Trust Account including interest (which interest shall be netfor the benefit of franchise feesthe public shares that were not converted. The loan was non-interest bearing and income taxes payable dividedevidenced by a promissory note issued by BRAC on the number of then outstanding Public Shares, which redemption will completely extinguish Public Stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of BRAC’s remaining stockholders and BRAC’s Board of Directors, dissolve and liquidate, subject in the case of clauses (ii) and (iii) to BRAC’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.same date. The loan was repaid on August 12, 2019.
11 |
BLACK RIDGE OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Restated)
Business Combination Agreement
On December 19, 2018, BRAC entered into the Business Combination Agreement with Merger Sub, Allied Esports, Ourgame, Noble and Primo. The Business Combination Agreement was amended on August 5, 2019 and the Business Combination Agreement as amended is referred to as the Amended Business Combination Agreement. The merger closed on August 9, 2019.
Subject to the Amended Business Combination Agreement, (i) Noble merged with and into Allied Esports (the “Redomestication Merger”) with Allied Esports being the surviving entity in such merger and (ii) immediately after the Redomestication Merger, Merger Sub merged with into Allied Esports with Allied Esports being the surviving entity of such merger (the “Transaction Merger” and together with the Redomestication Merger, the “Mergers”).
The Mergers resulted in BRAC acquiring two of Ourgame’s global esports and entertainment assets, Allied Esports and WPT. Allied Esports is a premier esports entertainment company with a global network of dedicated esports properties and content production facilities. WPT is the creator of the World Poker Tour® (WPT®) – the premier name in internationally televised gaming and entertainment with brand presence in land-based tournaments, television, online and mobile. The transactions strategically combined the globally recognized Allied Esports brand with the three-pronged business model of the iconic World Poker Tour, featuring in-person experiences, multiplatform content and interactive services, to leverage the high-growth opportunities in the global esports industry.
Upon consummation of the Mergers (the “Closing”), BRAC issued to the former owners of Allied Esports and WPT (i) an aggregate of 11,602,754 shares of common stock, par value $0.0001 per share, of BRAC common stock and (ii) an aggregate of 3,800,003 warrants to purchase shares of common stock of the BRAC.
In addition to the consideration described above, the former owners of Allied Esports and WPT will receive their pro rata portion of an aggregate of an additional 3,846,153 shares of the BRAC’s common stock if the last sales price of BRAC’s common stock equals or exceeds $13.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for thirty (30) consecutive days at any time during the five (5) year period commencing on the date of the Closing (the “Closing Date”).
The Business Combination Agreement, which original called for a debt repayment to Ourgame of $35,000,000 was amended to call for BRAC to (i) assume $10,000,000 of the debt obligations of Ourgame and Noble (including an additional $1,200,000 of accrued interest) and (ii) repay Ourgame the remaining balance of $23,800,000 by paying $3,500,000 in cash to Ourgame and its designees, issuing to Ourgame and its designees 2,928,679 shares of BRAC’s common stock and Ourgame retaining $1,000,000 of the proceeds of such loans to pay its transaction expenses incurred in the Merger. In connection with entering into the Amendment, BROG, as BRAC’s founder, agreed to transfer an aggregate of 600,000 shares of BRAC’s common stock held by it to Ourgame.
Additionally, In July and August 2019, BRAC and BROG entered into several share purchase agreements (the “Purchase Agreements”) with several parties (collectively referred to as the “Purchasers”). Pursuant to the Purchase Agreements, the Purchasers agreed to purchase an aggregate of $18,000,000 of shares of BRAC’s common stock in open market or privately negotiated transactions. If the Purchasers were unable to purchase the full $18,000,000 of shares of common stock in open market or privately negotiated transactions, BRAC will issue to the Purchasers newly issued shares at the Closing at a per-share price equal to the per-share amount held in BRAC’s trust account ($10.30 per share), and having an aggregate value equal to the difference between $18,000,000 and the dollar amount of shares purchased by them in the open market or in privately negotiated transactions. At the Closing, BRAC agreed to issue to the Purchasers 1.5 shares of common stock for every 10 shares purchased by them under the Purchase Agreements. Additionally, BROG agreed to transfer an aggregate of 720,000 shares held by it of BRAC common stock to the Purchasers. Pursuant to the Purchase Agreements, BRAC is required to file a registration statement with the SEC as promptly as practicable following the closing of the merger to register the resale of any securities purchased by the Purchasers that are not already registered and cause such registration statement to become effective as soon as possible. The Purchasers included a $3 million investment from Lyle Berman, a member of the board of directors of both BRAC and BROG and the largest shareholder of BROG. Additionally, $5 million will be held in an escrow account and its usage will be limited to specific capital projects.
Consummation of the transactions contemplated by the Amended Business Combination Agreement was subject to certain closing conditions including, among others, (i) approval by the stockholders of BRAC, and (ii) that BRAC have available cash in an amount not less than $22,000,000 after payment to stockholders who elect to redeem their shares of common stock in accordance with the provisions of BRAC’s charter documents. This second condition was waived by Ourgame prior to the close.
12 |
BLACK RIDGE OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Restated)
Consolidation of BRAC and Non-controlling Interest
The Company has determined that BRAC, following its IPO, iswas a VIE and that the Company is the primary beneficiary of the VIE. The Company determined that, due to the redemption feature associated with the IPO shares, that the IPO shareholders are indirectly protected from the operating expenses of BRAC and BROG hashad the power to direct the activities of BRAC through the date at which BRAC affords the stockholders the opportunity to vote to approve a proposed business combination. Therefore, thesethe consolidated financial statements contain the operations of the BRAC from its inception on May 9, 2017.2017 through the date of the merger, when BRAC was determined to no longer be a VIE. BRAC’s IPO shareholders are reflected in our Consolidated Financial Statements as a redeemable non-controlling interest.interest prior to the merger. The non-controlling interest was recorded at fair value on October 10, 2017, with an addition on October 18, 2017 as a result of the underwriters’ exercise of their over-allotment option. TheDuring the period in which BRAC was consolidated, the net earnings attributable to the IPO shareholders are subtracted from the net gain (loss) for any period to arrive at the net loss attributable to the Company and the non-controlling interest on the balance sheet is adjusted to include the net earnings attributable to the IPO shareholders.
Deconsolidation of BRAC
Additionally, US GAAP (ASC 810-10-40) provides guidance on “Derecognition” of a previously consolidated entity or entities. Under this guidance, the Company shall account for the deconsolidation of a subsidiary or derecognition of a group of assets specified in ASC 810-10-40-3A by recognizing a gain or loss in net income attributable to the parent, measured as the difference between the combination of:
a) The fair value of:
· | any consideration received. In this case, the Company received no consideration. |
· | any retained non-controlling investment in the former subsidiary or group of assets at the date the subsidiary is deconsolidated, or the group of assets is derecognized. In this case the fair value of the BRAC common stock at the close of the business combination was $11,950,475; and |
b) The carrying amount of the former subsidiaries assets and liabilities or the carrying amount of the group of assets.
With the above guidance the Company determined that the effect of the deconsolidation of BRAC produced a gain of $26,322,687, which is a non-cash adjustment.
Intercompany transactions and eliminations
BROG iswas paid a management fee by BRACAESE of $10,000 per month as part of an administrative services agreement, which commenced October 5, 2017 and ended on the date of the merger, for general and administrative services including the cost of office space and personnel dedicated to BRAC.AESE. BROG iswas also reimbursed for any out-of-pocket expenses, particularly travel, incurred in connection with activities on BRAC’sAESE’s behalf, including but not limited to identifying potential target businesses and performing due diligence on suitable business combinations. There is no cap or ceiling on the reimbursement of out-of-pocket expenses incurred by BRAC. BRACAESE paid a total of $30,000$72,903 to BROG for such services for the threenine months ended March 31, 2019.September 30, 2019 while AESE remained a VIE and was consolidated. The management services income of BROG and the management services expense of BRACAESE as well as any balances due between the companies for such services or reimbursements were eliminated in consolidation. Management fees earned by BROG of $153,279 subject to the management services agreement between AESE and BROG in effect subsequent to the merger are not eliminated.
13 |
BLACK RIDGE OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Restated)
Note 6 – Prepaid Expenses
Prepaid expenses consist of the following:
March 31, | December 31, | September 30, | December 31, | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Prepaid insurance costs | $ | 14,461 | $ | 28,751 | $ | 12,156 | $ | 17,501 | ||||||||
Prepaid employee benefits | 11,822 | 11,865 | 500 | 11,865 | ||||||||||||
Prepaid office and other costs | 74,118 | 13,319 | 12,166 | 13,319 | ||||||||||||
Total prepaid expenses | $ | 100,401 | $ | 53,935 | $ | 24,822 | $ | 42,685 |
Note 7 – Property and Equipment
Property and equipment at March 31,September 30, 2019 and December 31, 2018, consisted of the following:
March 31, | December 31, | September 30, | December 31, | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Property and equipment | $ | 128,965 | $ | 128,156 | $ | 128,965 | $ | 128,156 | ||||||||
Less: Accumulated depreciation and amortization | (127,374 | ) | (126,931 | ) | (127,685 | ) | (126,931 | ) | ||||||||
Total property and equipment, net | $ | 1,591 | $ | 1,225 | $ | 1,280 | $ | 1,225 |
The Company recognized depreciation expense of $443$754 and $2,558$7,650 for the threenine month periods ended March 31,September 30, 2019 and 2018, respectively.
Note 8 – Investment in Allied Esports Entertainment, Inc.
Following the close of BRAC’s merger, the Company retained 2,685,500 shares of AESE common stock with a value, based on the closing stock of $4.45 on the merger, of $11,950,475. As noted below, in Note 9 - Related Party Transactions, 20% or 537,100, of the shares are committed to be released to employees one year from the date of the merger, or on August 9, 2020. Therefore, the Company recorded compensation expense and recorded a deferred compensation liability of $2,309,095 to recognize the commitment to employees. To facilitate the BRAC merger the Company transferred 1,320,000 shares to the former owners of Allied Esports and WPT and other investors, recognizing an expense of $5,874,000.
BLACK RIDGE OIL & GAS, INC.
NotesAs of September 30, 2019, the market value of the Company’s investment in AESE’s common stock was $14,045,165, based on the closing stock price of $5.23 per share. Thus, we recognized a gain of $2,094,690, and adjusted the compensation expense and deferred compensation expense to Condensed Consolidated Financial Statements$2,809,033 to reflect the change in the market value of the stock committed to employees and directors. The balance in deferred compensation will be adjusted quarterly to reflect changes in the market value of the AESE common stock committed to them.
(Unaudited)
Note 89 – Related Party Transactions
On March 1, 2018, the Board of Directors (the “Board”) of the Company approved and adopted the Black Ridge Oil & Gas, Inc. 2018 Management Incentive Plan (the “Plan”) and the form of 2018 Management Incentive Plan Award Agreement (the “Award Agreement”).
14 |
BLACK RIDGE OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Restated)
In connection with the approval of the Plan and Award Agreement, the Board approved the issuance of awards (the “Awards”) to certain individuals including officers and directors (the “Grantees”), representing a percentage20% of the shares of BRACAESE held by the Company as of the date of closing of a business combination for the acquisition of a target business as described in the BRACAESE prospectus dated October 4, 2017, as follows:
Percentage of | ||||
Name | Company to be Granted to the Grantee | |||
Bradley Berman | 1.6% | |||
Lyle Berman | 1.6% | |||
Benjamin Oehler | 1.6% | |||
Joe Lahti | 1.6% | |||
Kenneth DeCubellis | 4.0% | |||
Michael Eisele | 2.8% | |||
James Moe | 2.1% |
As of September 30, 2019, and following the AESE merger on August 9, 2019, the Company owned 2,685,500 shares of AESE common stock. As a result, 537,100 shares of AESE common stock (the “AESE Shares”) are committed to employees and directors of the Company. Employees and directors are required to remain in their positions for a one-year period, with certain exceptions, to receive the granted shares. The AESE Shares had a fair market value of $2,809,033 on September 30, 2019. The Company currently owns 3,895,000is recognizing the full expense related to the Plan immediately upon the AESE merger date. Compensation expense of $2,309,095 was recognized upon merger and was adjusted on September 30, 2019 to $2,809,033 due to changes in the AESE market price between the August 9, 2019 merger and September 30, 2019. Subsequent adjustments will be required each quarter to adjust the deferred compensation liability until the shares can be transferred to the employees.
Shares Transferred to Purchasers of BRAC Common Stock
As presented in Note 5, In July and August 2019, BRAC and BROG entered into several share purchase agreements (the “Purchase Agreements”) with several parties (collectively referred to as the “Purchasers”). Pursuant to the Purchase Agreements, the Purchasers agreed to purchase an aggregate of $18,000,000 of shares of BRAC’s common stock in open market or privately negotiated transactions. If the Purchasers were unable to purchase the full $18,000,000 of shares of common stock in open market or privately negotiated transactions, BRAC will issue to the Purchasers newly issued shares at the Closing at a per-share price equal to the per-share amount held in BRAC’s trust account ($10.30 per share), and having an aggregate value equal to the difference between $18,000,000 and the dollar amount of shares purchased by them in the open market or in privately negotiated transactions. At the Closing, BRAC agreed to issue to the Purchasers 1.5 shares of common stock for every 10 shares purchased by them under the Purchase Agreements. Additionally, the Company agreed to transfer an aggregate of 720,000 shares held by it of BRAC common stock and has rights to an additional 44,500 shares that would be issued on the datePurchasers. The Purchasers included a $3 million investment from Lyle Berman, a member of the closingboard of directors of both BRAC and BROG and the largest shareholder of BROG, and a business combination. The actual number$2 million investment from Morris Goldfarb, a major shareholder of the Company. Mr. Berman and Mr. Goldfarb received 43,800 and 29,127 bonus shares, respectively, of BRAC common stock granted toissued by BRAC and 120,000 and 80,000 shares, respectively, of BRAC common stock transferred from the Grantees will be determined on the date of closing of a business combination and will be issued one year from that date. The Company will recognize no expense related to the Awards until a business combination is probable.
The Company has recognized no expense related to the plan as the grant of shares is contingent on a future event.Company.
BRAC Convertible Loans
In order to finance transaction costs in connection with an intended initial business combination, BROG and its officers, directors or their affiliates may, but are not obligated to, loan BRAC funds as may be required. If BRAC consummateshad loaned AESE an initial business combination, BRAC would repay such loaned amounts. In the event that the initial business combination does not close, BRAC may use a portion of the working capital held outside the trust account to repay such loaned amounts, but no proceeds from BRAC’s trust account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into units of the post business combination entity at a price of $10.00 per unit at the option of the lender. The units would be identical to the Placement Units.
As of March 31, 2019, BROG has loaned BRAC,aggregate $750,000 in the form of a convertible promissory notes, an aggregate $650,000 to cover expenses related to a proposed business combination.notes. The notes arewere unsecured, non-interest bearing and payable atupon the consummation by BRACAESE of a merger, share exchange, asset acquisition, or other similar business combination, with one or more businesses or entities (a “Business Combination”). Upon consummation of a Business Combination, the principal balance of the notes maycould be converted, at BROG’s option, to units at a price of $10.00 per unit. The terms of the units are identical to the units issued by BRAC in its initial public offering,IPO, except the warrants included in such units will be non-redeemable and maycould be exercised on a cashless basis, in each case so long as they continuecontinued to be held by BROG or its permitted transferees. If BROG convertselected to convert $600,000 of the entire principal balance of the convertible promissory note, it would receive 65,000 units. If a Business Combination is not consummated, the notes will not be repaid by BRAC and all amounts owed thereunder by BRAC will be forgiven except to the extent that BRAC has funds available to it outsidereceived 60,000 units consisting of its trust account established in connection with the initial public offering. The issuance66,000 shares of AESE common stock (after conversion of the notesstock rights into 6,000 shares) and 60,000 warrants. The remaining $150,000 was exempt pursuantrepaid to Section 4(a)(2)BROG at the date of the Securities Act of 1933, as amended.merger.
BLACK RIDGE OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Restated)
Note 910 – Fair Value of Financial Instruments
The Company adopted FASB ASC 820-10 upon inception at April 9, 2010. Under FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.
The Company had revolving credit facilities that must be measured under the new fair value standard. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheets as of March 31,September 30, 2019 and December 31, 2018:
Fair Value Measurements at March 31, 2019 | Fair Value Measurements at September 30, 2019 | |||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
Assets | ||||||||||||||||||||||||
Restricted cash and investments held in trust | $ | 142,027,742 | $ | – | $ | – | ||||||||||||||||||
Cash and cash equivalents | 826,525 | – | – | $ | 64,613 | $ | – | $ | – | |||||||||||||||
Investment in Allied Esports Entertainment, Inc. | 14,045,165 | – | – | |||||||||||||||||||||
Total assets | 142,854,267 | – | – | 14,109,778 | – | – | ||||||||||||||||||
Liabilities | – | – | – | |||||||||||||||||||||
None | – | – | – | |||||||||||||||||||||
Total liabilities | – | – | – | – | – | – | ||||||||||||||||||
$ | 142,854,267 | $ | – | $ | – | $ | 14,109,778 | $ | – | $ | – |
Fair Value Measurements at December 31, 2018 | ||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Cash and cash equivalents | $ | 1,503,500 | $ | – | $ | – | ||||||
Restricted cash and investments held in trust | 141,307,307 | – | – | |||||||||
Total assets | 142,810,807 | – | – | |||||||||
Liabilities | ||||||||||||
None | – | – | – | |||||||||
Total liabilities | – | – | – | |||||||||
$ | 142,810,807 | $ | – | $ | – |
There were no transfers of financial assets or liabilities between Level 1 and Level 2 inputs for the nine months ended September 30, 2019.
BLACK RIDGE OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Restated)
Fair Value Measurements at December 31, 2018 | ||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Restricted cash and investments held in trust | $ | 141,307,307 | ||||||||||
Cash and cash equivalents | 1,503,500 | $ | – | $ | – | |||||||
Total assets | 142,810,807 | – | – | |||||||||
Liabilities | – | – | – | |||||||||
Total liabilities | – | – | – | |||||||||
$ | 142,810,807 | $ | – | $ | – |
There were no transfers of financial assets or liabilities between Level 1 and Level 2 inputs for the three months ended March 31, 2019.
Note 1011 – Stockholders’ Equity
Preferred Stock
The Company has 20,000,000 authorized shares of $0.001 par value preferred stock. No shares have been issued to date.
Common Stock
The Company has 500,000,000 authorized shares of $0.001 par value common stock. As of March 31,September 30, 2019, and December 31, 2018, a total of 479,844,900 shares of common stock have been issued.
Note 1112 – Options
Options Granted
No options were granted during the threenine months ended March 31,September 30, 2019 and 2018.
The Company recognized a total of $27,931,$83,705, and $85,833$244,664 of compensation expense during the threenine months ended March 31,September 30, 2019 and 2018, respectively, related to common stock options issued to Employees and Directors that are being amortized over the implied service term, or vesting period, of the options. The remaining unamortized balance of these options is $99,853$44,079 as of March 31,September 30, 2019.
Options Exercised
No options were exercised during the threenine months ended March 31,September 30, 2019 and 2018.
Options Forfeited
A total of 125,000137,000 options expired and were forfeited during the threenine months ended March 31,September 30, 2019. NoA total of 22,000 options were forfeited during the threenine months ended March 31,September 30, 2018.
Note 13 – Warrants
Warrants Granted
No warrants were granted during the nine months ended September 30, 2019 and 2018.
Warrants Exercised
No warrants were exercised during the nine months ended September 30, 2019. Warrants to purchase 45,000 shares were exercised in the nine months ended September 30, 2018 for proceeds of $450.
BLACK RIDGE OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 12 – Warrants(Restated)
Warrants Granted
No warrants were granted during the three months ended March 31, 2019 and 2018.
Warrants Exercised
No warrants were exercised during the three months ended March 31, 2019 and 2018.
Outstanding Warrants
The Company issued 435,000 warrants (of which 390,000 are outstanding as of March 31,September 30, 2019) to purchase shares at $0.01 per share to participants of the Backstop Agreement on September 22, 2017. The Company accounted for the warrants as an expense of the Rights Offering which resulted in a charge directly to stockholders’ equity. The Company estimated the fair value of these warrants to be approximately $10,135 (or $.0233$0.0233 per warrant) using the Black-Scholes option-pricing model. The fair value of the warrants was estimated as of the date of grant using the following assumptions: (1) expected volatility of 388%, (2) risk-free interest rate of 1.89% and (3) expected life of five years.
Note 13 - BRAC Rights and Warrants
Initial Public Offering
Pursuant to its Initial Public Offering and including the subsequent over-allotment option exercised by the underwriter, BRAC sold 13,800,000 Units at a purchase price of $10.00 per Unit. Each Unit consists of one share of common stock, one right (“Public Right”) and one warrant (“Public Warrant”). Each Public Right will convert into one-tenth (1/10) of one share of common stock upon consummation of a Business Combination. Each Public Warrant entitles the holder to purchase one share of common stock at an exercise price of $11.50.
Private Placement
Simultaneous with the Initial Public Offering and over-allotment option exercise, BROG purchased an aggregate of 445,000 Placement Units at a price of $10.00 per Unit (or an aggregate purchase price of $4,450,000). Each Placement Unit consists of one share of common stock (“Placement Share”), one right (“Placement Right”) and one warrant (each, a “Placement Warrant”) to purchase one share of the common stock at an exercise price of $11.50 per share. The proceeds from the Placement Units were added to the proceeds from the Initial Public Offering held in the Trust Account. If BRAC does not complete a Business Combination within the Combination Period, the proceeds of the sale of the Placement Units will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Placement Rights and Placement Warrants will expire worthless.
The Placement Units are identical to the Units sold in the Initial Public Offering except that the Placement Warrants (i) are not redeemable by BRAC and (ii) may be exercised for cash or on a cashless basis, so long as they are held by BROG or any of its permitted transferees. In addition, the Placement Units and their component securities may not be transferable, assignable or salable until after the consummation of a Business Combination, subject to certain limited exceptions.
Rights
Each holder of a right will receive one-tenth (1/10) of one share of common stock upon consummation of a Business Combination, even if a holder of such right converted all ordinary shares held by it in connection with a Business Combination. No fractional shares will be issued upon exchange of the rights. No additional consideration will be required to be paid by a holder of rights in order to receive its additional shares upon consummation of a Business Combination as the consideration related thereto has been included in the Unit purchase price paid for by investors in the Initial Public Offering. If BRAC enters into a definitive agreement for a Business Combination in which BRAC will not be the surviving entity, the definitive agreement will provide for the holders of rights to receive the same per share consideration the holders of the shares of common stock will receive in the transaction on an as-converted into shares of common stock basis and each holder of rights will be required to affirmatively covert its rights in order to receive 1/10 of a share of common stock underlying each right (without paying additional consideration). The shares of common stock issuable upon exchange of the rights will be freely tradable (except to the extent held by affiliates of BRAC).
If BRAC is unable to complete a Business Combination within the Combination Period and BRAC liquidates the funds held in the Trust Account, holders of rights will not receive any of such funds with respect to their rights, nor will they receive any distribution from BRAC’s assets held outside of the Trust Account with respect to such rights, and the rights will expire worthless. Further, there are no contractual penalties for failure to deliver securities to the holders of the rights upon consummation of a Business Combination. Additionally, in no event will BRAC be required to net cash settle the rights. Accordingly, the rights may expire worthless.
The rights included in the Private Units sold in the Private Placement are identical to the rights included in the Units sold in the Initial Public Offering, except that, among others, the rights including the shares issuable upon exchange of such rights, are being purchased pursuant to an exemption from the registration requirements of the Securities Act and will become tradable only after certain conditions are met or the resale of such rights (including underlying securities) is registered under the Securities Act.
Warrants
Warrants may only be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Warrants. The Warrants will become exercisable on the later of (a) 30 days after the consummation of a Business Combination or (b) October 10, 2018. No Warrants will be exercisable for cash unless BRAC has an effective and current registration statement covering the shares of common stock issuable upon exercise of the Warrants and a current prospectus relating to such shares. Notwithstanding the foregoing, if a registration statement covering the shares of common stock issuable upon the exercise of the Warrants is not effective within 30 days from the consummation of a Business Combination, the holders may, until such time as there is an effective registration statement and during any period when BRAC shall have failed to maintain an effective registration statement, exercise the Warrants on a cashless basis pursuant to an available exemption from registration under the Securities Act. If an exemption from registration is not available, holders will not be able to exercise their Warrants on a cashless basis. The Warrants will expire five years from the consummation of a Business Combination or earlier upon redemption or liquidation.
The Private Warrants will be identical to the Warrants underlying the Units sold in the Initial Public Offering, except the Private Warrants will be exercisable for cash (even if a registration statement covering the shares of common stock issuable upon exercise of such Private Warrants is not effective) or on a cashless basis, at the holder’s option, and will not be redeemable by BRAC, in each case so long as they are still held by BROG or its affiliates.
BRAC may call the Warrants for redemption (excluding the Private Warrants but including any outstanding Warrants issued upon exercise of the unit purchase option issued to EarlyBirdCapital), in whole and not in part, at a price of $.01 per Warrant:
BLACK RIDGE OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
If BRAC calls the Warrants for redemption, management will have the option to require all holders that wish to exercise the Warrants to do so on a “cashless basis,” as described in the warrant agreement.
The exercise price and number of shares of common stock issuable upon exercise of the Warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. However, the Warrants will not be adjusted for issuances of shares of common stock at a price below its exercise price. Additionally, in no event will BRAC be required to net cash settle the Warrants. If BRAC is unable to complete a Business Combination within the Combination Period and BRAC liquidates the funds held in the Trust Account, holders of Warrants will not receive any of such funds with respect to their Warrants, nor will they receive any distribution from BRAC’s assets held outside of the Trust Account with respect to such Warrants. Accordingly, the Warrants may expire worthless.
Unit Purchase Option
On October 10, 2017, BRAC sold to the underwriter and its designees, for $100, an option to purchase up to 600,000 Units exercisable at $11.50 per Unit (or an aggregate exercise price of $6,900,000) commencing on the later of the first anniversary of the effective date of the registration statement related to the Initial Public Offering and the consummation of a Business Combination. The unit purchase option may be exercised for cash or on a cashless basis, at the holder’s option, and expires five years from the effective date of the registration statement related to the Initial Public Offering. The Units issuable upon exercise of this option are identical to those offered in the Initial Public Offering. BRAC accounted for the unit purchase option, inclusive of the receipt of $100 cash payment, as an expense of the Initial Public Offering resulting in a charge directly to stockholders’ equity. BRAC estimated the fair value of this unit purchase option to be approximately $1,778,978 (or $2.97 per Unit) using the Black-Scholes option-pricing model. The fair value of the unit purchase option granted to the underwriters was estimated as of the date of grant using the following assumptions: (1) expected volatility of 35%, (2) risk-free interest rate of 1.94% and (3) expected life of five years. The option and such units purchased pursuant to the option, as well as the common stock underlying such units, the rights included in such units, the common stock that is issuable for the rights included in such units, the warrants included in such units, and the shares underlying such warrants, have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA’s NASDAQ Conduct Rules. Additionally, the option may not be sold, transferred, assigned, pledged or hypothecated for a one-year period (including the foregoing 180-day period) following the date of Initial Public Offering except to any underwriter and selected dealer participating in the Initial Public Offering and their bona fide officers or partners. The option grants to holders demand and “piggy back” rights for periods of five and seven years, respectively, from the effective date of the registration statement with respect to the registration under the Securities Act of the securities directly and indirectly issuable upon exercise of the option. BRAC will bear all fees and expenses attendant to registering the securities, other than underwriting commissions which will be paid for by the holders themselves. The exercise price and number of units issuable upon exercise of the option may be adjusted in certain circumstances including in the event of a stock dividend, or BRAC’s recapitalization, reorganization, merger or consolidation. However, the option will not be adjusted for issuances of ordinary shares at a price below its exercise price.
Note 14 – Income Taxes
The Company accounts for income taxes under ASC Topic 740,Income Taxes, which provides for an asset and liability approach of accounting for income taxes. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences, using currently enacted tax laws, attributed to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts calculated for income tax purposes.
BLACK RIDGE OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
BROG and BRAC file returns independently and do not file as a consolidated group. We currently estimate that our effective tax rate for the year ending December 31, 2019 will be 0% for BROG and 35.9% for BRAC.
For BROG, lossesLosses incurred during the period from April 9, 2011 (inception) to March 31,September 30, 2019 could be used to offset future tax liabilities. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits of deferred tax assets will not be realized. As of March 31,September 30, 2019, net deferred tax assets were $9,735,771,$4,359,663, with no deferred tax liability, primarily related to net operating loss carryforwards. A valuation allowance of approximately $9,735,771$4,359,663 was applied to the net deferred tax assets. Therefore, BROG has no tax expense for 2019 to date.
For BRAC, the tax expense of $186,579 and $94,677 for the three months ended March 31, 2019 and 2018, respectively, was primarily driven by the Company’s interest income offset by general and administrative expenses resulting in income before provision for income taxes.
In accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no significant uncertain tax positions as of any date on, or before March 31,September 30, 2019.
Note 15 – Commitments
The Company from time to time may be involved in various inquiries, administrative proceedings and litigation relating to matters arising in the normal course of business. The Company is not aware of any inquiries or administrative proceedings and is not currently a defendant in any material litigation and is not aware of any threatened litigation that could have a material effect on the Company.
The Company periodically maintains cash balances at banks in excess of federally insured amounts. The extent of loss, if any, to be sustained as a result of any future failure of a bank or other financial institution is not subject to estimation at this time.
BRAC’s agreements with underwriters
BRAC engaged the underwriters as advisors in connection with its Initial Business Combination to assist it in holding meetings with its shareholders to discuss the potential business combination and the target business’ attributes, introduce it to potential investors that are interested in purchasing its securities, assist it in obtaining shareholder approval for the business combination and assist it with its press releases and public filings in connection with the business combination. BRAC will pay its underwriters a cash fee for such services upon the consummation of its initial business combination in an amount equal to 3.5% of the gross proceeds of its offering (exclusive of any applicable finders’ fees which might become payable).
Registration rights
The holders of BROG’s shares of BRAC issued and outstanding on the date of BRAC’s Initial Public Offering, as well as the holders of the private units and any units BROG, and its officers, directors or their affiliates may be issued in payment of working capital loans made to BRAC (and all underlying securities), are entitled to registration rights pursuant to a registration rights agreement dated October 4, 2017. The holders of a majority of these securities are entitled to make up to two demands that BRAC register such securities. The holders of the majority of the BROG’s shares can elect to exercise these registration rights at any time commencing three months prior to the date on which these shares of BRAC’s common stock are to be released from escrow. The holders of a majority of the private units and units issued to BROG, and its officers, directors or their affiliates in payment of working capital loans made to us (or underlying securities) can elect to exercise these registration rights at any time after BRAC consummates a business combination. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to our consummation of a business combination. The Company would bear the expenses incurred in connection with the filing of any such registration statements.
BLACK RIDGE OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 16 – BRAC’s Proposed Business Combination
Business Combination Agreement
On December 19, 2018, BRAC entered into the Business Combination Agreement by and among BRAC, Black Ridge Merger Sub, Corp., a Delaware corporation and wholly-owned subsidiary of BRAC formed on December 19, 2018 (“Merger Sub”), Allied Esports, Ourgame, Noble, and Primo.
Subject to the Agreement, (i) Noble will merge with and into Allied Esports (the “Redomestication Merger”) with Allied Esports being the surviving entity in such merger and (ii) immediately after the Redomestication Merger, Merger Sub will merge with and into Allied Esports with Allied Esports being the surviving entity of such merger (the “Transaction Merger” and together with the Redomestication Merger, the “Mergers”).
The Mergers will result in BRAC acquiring two of Ourgame’s global esports and entertainment assets, Allied Esports and WPT. Allied Esports is a premier esports entertainment company with a global network of dedicated esports properties and content production facilities. WPT is the creator of the World Poker Tour® (WPT®) – the premier name in internationally televised gaming and entertainment with brand presence in land-based tournaments, television, online and mobile. The proposed transaction will seek to strategically combine the globally recognized Allied Esports brand with the three-pronged business model of the iconic World Poker Tour, featuring in-person experiences, multiplatform content and interactive services, to leverage the high-growth opportunities in the global esports industry.
Upon consummation of the Mergers (the “Closing”), BRAC will issue to the former owners of Allied Esports and WPT (i) an aggregate of 11,602,754 shares of common stock, par value $0.0001 per share, of BRAC’s common stock and (ii) an aggregate of 3,800,003 warrants to purchase shares of common stock of BRAC. BRAC will also pay Ourgame $35,000,000 to satisfy certain obligations owed to it by Allied Esports assumed in the transaction.
In addition to the consideration described above, the former owners of Allied Esports and WPT will be entitled to receive their pro rata portion of an aggregate of an additional 3,846,153 shares of BRAC’s common stock if the last sales price of BRAC’s common stock equals or exceeds $13.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for thirty (30) consecutive days at any time during the five (5) year period commencing on the date of the Closing (the “Closing Date”).
Proposed Changes to the Capital Structure
BRAC is seeking shareholder approval to amend its charter to increase the authorized shares of BRAC’s common stock to 65,000,000 shares.
Conditions to Consummation of the Business Combination
Consummation of the transactions contemplated by the Agreement is subject to certain closing conditions including, among others, (i) approval by the stockholders of BRAC and Ourgame, and (ii) that BRAC have available cash in an amount not less than $80,000,000 after payment to stockholders who elect to redeem their shares of common stock in accordance with the provisions of BRAC’s Charter Documents.
BLACK RIDGE OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Termination
The Agreement may be terminated at any time prior to the consummation of the Agreement (whether or not the approval of BRAC’s shareholders has been obtained) by mutual written consent of the Company and Ourgame and Noble and in certain other limited circumstances, including if the Proposed Business Combination has not been consummated by July, 10, 2019.
Note 17 – Subsequent Events
The Company evaluates events that have occurred after the balance sheet date through the date these financial statements were issued. No events occurred of a material nature that would have required adjustments to or disclosures in these financial statements.
Note 17 – Explanation of our Restatement
The Company is filing this Amendment No. 1 on Form 10-Q/A to its Quarterly Report for the period ended September 30, 2019, which was filed with the Securities and Exchange Commission (“SEC”) on November 14, 2019 (the “Original Report”) in response to certain issues set forth in our Current Report on Form 8-K filed with the SEC on May 15, 2020 (the “Form 8-K”). The financial statements contained in our Quarterly Report on Form 10-Q for the period ended September 30, 2019 require restatement in order to correct the presentation of unrealized losses on our investment in Allied Esports Entertainment, Inc. In accordance with Accounting Standards Update No. 2016-01 –Financial Instruments – Overall (Subtopic 825-10), unrealized losses that were originally separately presented as other comprehensive income have now been amended and included in our net loss. The changes in our consolidated financial statements are summarized, below.
18 |
BLACK RIDGE OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Restated)
BLACK RIDGE OIL & GAS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As Originally | ||||||||||||
Reported | As Restated | |||||||||||
September 30, | September 30, | |||||||||||
2019 | Adjusted | 2019 | ||||||||||
ASSETS | (Unaudited) | |||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | 64,613 | $ | – | $ | 64,613 | ||||||
Receivable from Allied Esports Entertainment, Inc. | 181,211 | – | 181,211 | |||||||||
Prepaid expenses | 24,822 | – | 24,822 | |||||||||
Total current assets | 270,646 | – | 270,646 | |||||||||
Property and equipment: | ||||||||||||
Property and equipment | 128,965 | – | 128,965 | |||||||||
Less accumulated depreciation | (127,685 | ) | – | (127,685 | ) | |||||||
Total property and equipment, net | 1,280 | – | 1,280 | |||||||||
Investment in Allied Esports Entertainment, Inc. | 14,045,165 | – | 14,045,165 | |||||||||
Total assets | $ | 14,317,091 | $ | – | $ | 14,317,091 | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable | $ | 48,419 | $ | – | $ | 48,419 | ||||||
Accrued expenses | 33,827 | – | 33,827 | |||||||||
Deferred Compensation | 2,809,033 | – | 2,809,033 | |||||||||
Total current liabilities | 2,891,279 | – | 2,891,279 | |||||||||
Long term liabilities | – | – | – | |||||||||
Total liabilities | 2,891,279 | – | 2,891,279 | |||||||||
Commitments and contingencies | – | – | – | |||||||||
Stockholders' equity: | ||||||||||||
Preferred stock, $0.001 par value, 20,000,000 shares authorized, no shares issued and outstanding | – | – | – | |||||||||
Common stock, $0.001 par value, 500,000,000 shares authorized, 479,844,900 shares issued and outstanding | 479,845 | – | 479,845 | |||||||||
Additional paid-in capital | 36,559,437 | – | 36,559,437 | |||||||||
Accumulated other comprehensive income | 2,094,690 | (2,094,690 | ) | – | ||||||||
Accumulated deficit | (27,708,160 | ) | 2,094,690 | (25,613,470 | ) | |||||||
Total stockholders' equity | 11,425,812 | – | 11,425,812 | |||||||||
Total liabilities, redeemable non-controlling interest and stockholders' equity | $ | 14,317,091 | $ | – | $ | 14,317,091 |
See accompanying notes to consolidated financial statements.
19 |
BLACK RIDGE OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Restated)
BLACK RIDGE OIL & GAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 2019
(Unaudited)
As Originally | ||||||||||||
Reported | Adjusted | As Restated | ||||||||||
Management fee income | $ | 153,279 | $ | – | $ | 153,279 | ||||||
Total revenues | 153,279 | – | 153,279 | |||||||||
Operating expenses: | ||||||||||||
General and administrative expenses | ||||||||||||
Salaries and benefits | 279,621 | – | 279,621 | |||||||||
Stock-based compensation and deferred compensation | 2,836,920 | – | 2,836,920 | |||||||||
Professional services | 40,287 | – | 40,287 | |||||||||
Other general and administrative expenses | 69,157 | – | 69,157 | |||||||||
Total general and administrative expenses | 3,225,985 | – | 3,225,985 | |||||||||
Depreciation and amortization | 131 | – | 131 | |||||||||
Total operating expenses | 3,226,116 | – | 3,226,116 | |||||||||
Net operating loss | (3,072,837 | ) | – | (3,072,837 | ) | |||||||
Other income (expense): | ||||||||||||
Gain on deconsolidation of subsidiary | 20,448,687 | – | 20,448,687 | |||||||||
Gain on investment in Allied Esports Entertainment, Inc. | – | 2,094,690 | 2,094,690 | |||||||||
Total other income (expense) | 20,448,687 | 2,094,690 | 22,543,377 | |||||||||
Net profit before provision for income taxes | 17,375,850 | 2,094,690 | 19,470,540 | |||||||||
Provision for income taxes | – | – | – | |||||||||
Net profit from continuing operations, net of tax | 17,375,850 | 2,094,690 | 19,470,540 | |||||||||
Net profit (loss) from discontinued operations | (8,152,165 | ) | – | (8,152,165 | ) | |||||||
Net profit before non-controlling interest | 9,223,685 | 2,094,690 | 11,318,375 | |||||||||
Less net profit attributable to redeemable non-controlling interest | (142,919 | ) | – | (142,919 | ) | |||||||
Net income attributable to Black Ridge Oil & Gas, Inc. | $ | 9,080,766 | $ | 2,094,690 | $ | 11,175,456 | ||||||
Other comprehensive income: | ||||||||||||
Unrealized gain on investments | $ | 2,094,690 | $ | (2,094,690 | ) | $ | – | |||||
Net other comprehensive income (loss) attributed to Black Ridge Oil & Gas, Inc. | $ | 11,175,456 | $ | (11,175,456 | ) | $ | – | |||||
Weighted average common shares outstanding - basic | 479,844,900 | 479,844,900 | ||||||||||
Weighted average common shares outstanding - fully diluted | 480,089,919 | 480,089,919 | ||||||||||
Net income per common share - basic | $ | 0.02 | $ | – | $ | 0.02 | ||||||
Net income per common share - fully diluted | $ | 0.02 | $ | – | $ | 0.02 |
See accompanying notes to consolidated financial statements.
20 |
BLACK RIDGE OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Restated)
BLACK RIDGE OIL & GAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 2019
(Unaudited)
As Originally | ||||||||||||
Reported | Adjusted | As Restated | ||||||||||
Management fee income | $ | 153,279 | $ | – | $ | 153,279 | ||||||
Total revenues | 153,279 | – | 153,279 | |||||||||
Operating expenses: | ||||||||||||
General and administrative expenses | ||||||||||||
Salaries and benefits | 910,191 | – | 910,191 | |||||||||
Stock-based compensation and deferred compensation | 2,892,738 | – | 2,892,738 | |||||||||
Professional services | 79,978 | – | 79,978 | |||||||||
Other general and administrative expenses | 185,035 | – | 185,035 | |||||||||
Total general and administrative expenses | 4,067,942 | – | 4,067,942 | |||||||||
Depreciation and amortization | 754 | – | 754 | |||||||||
Total operating expenses | 4,068,696 | – | 4,068,696 | |||||||||
Net operating loss | (3,915,417 | ) | – | (3,915,417 | ) | |||||||
Other income (expense): | ||||||||||||
Gain on deconsolidation of subsidiary | 20,448,687 | – | 20,448,687 | |||||||||
Other income | 51 | – | 51 | |||||||||
Gain on investment in Allied Esports Entertainment, Inc. | – | 2,094,690 | 2,094,690 | |||||||||
Total other income (expense) | 20,448,738 | 2,094,690 | 22,543,428 | |||||||||
Net profit before provision for income taxes | 16,533,321 | 2,094,690 | 18,628,011 | |||||||||
Provision for income taxes | – | – | – | |||||||||
Net profit from continuing operations, net of tax | 16,533,321 | 2,094,690 | 18,628,011 | |||||||||
Net profit (loss) from discontinued operations | (7,421,050 | ) | – | (7,421,050 | ) | |||||||
Net profit before non-controlling interest | 9,112,271 | 2,094,690 | 11,206,961 | |||||||||
Less net profit attributable to redeemable non-controlling interest | (1,332,529 | ) | – | (1,332,529 | ) | |||||||
Net income attributable to Black Ridge Oil & Gas, Inc. | $ | 7,779,742 | $ | 2,094,690 | $ | 9,874,432 | ||||||
Other comprehensive income: | ||||||||||||
Unrealized gain on investments | $ | 2,094,690 | $ | (2,094,690 | ) | $ | – | |||||
Net other comprehensive income (loss) attributed to Black Ridge Oil & Gas, Inc. | $ | 9,874,432 | $ | (9,874,432 | ) | $ | – | |||||
Weighted average common shares outstanding - basic | 479,844,900 | 479,844,900 | ||||||||||
Weighted average common shares outstanding - fully diluted | 480,118,829 | 480,118,829 | ||||||||||
Net income per common share - basic | $ | 0.02 | $ | – | $ | 0.02 | ||||||
Net income per common share - fully diluted | $ | 0.02 | $ | – | $ | 0.02 |
See accompanying notes to consolidated financial statements.
21 |
BLACK RIDGE OIL & GAS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Restated)
BLACK RIDGE OIL & GAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2019
(Unaudited)
As Originally | ||||||||||||
Reported | Adjusted | As Restated | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
Net income attributable to Black Ridge Oil & Gas, Inc. | $ | 7,779,742 | $ | 2,094,690 | $ | 9,874,432 | ||||||
Net loss from discontinued operations | 7,421,050 | – | 7,421,050 | |||||||||
Net income attributable to redeemable non-controlling interest | 1,332,529 | – | 1,332,529 | |||||||||
Adjustments to reconcile net loss attributable to Black Ridge Oil & Gas, Inc. | ||||||||||||
to net cash provided by (used in) operating activities: | ||||||||||||
Gain on deconsolidation of subsidiary | (26,322,687 | ) | – | (26,322,687 | ) | |||||||
Merger incentive expense | 5,874,000 | – | 5,874,000 | |||||||||
Depreciation and amortization | 754 | – | 754 | |||||||||
Gain on investment in Allied Esports Entertainment, Inc. | – | (2,094,690 | ) | (2,094,690 | ) | |||||||
Amortization of stock options | 83,705 | – | 83,705 | |||||||||
Deferred compensation | 2,809,033 | – | 2,809,033 | |||||||||
Decrease (increase) in current assets: | ||||||||||||
Accounts receivable | 13 | – | 13 | |||||||||
Accounts receivable, related party | (181,211 | ) | – | (181,211 | ) | |||||||
Prepaid expenses | 17,863 | – | 17,863 | |||||||||
Increase (decrease) in current liabilities: | ||||||||||||
Accounts payable | 16,481 | – | 16,481 | |||||||||
Accrued expenses | 28,136 | – | 28,136 | |||||||||
Net cash provided by (used in) operating activities of continuing operations | (1,140,592 | ) | – | (1,140,592 | ) | |||||||
Net cash used in operating activities of discontinued operations | (8,618,568 | ) | – | (8,618,568 | ) | |||||||
Net cash provided by (used in) operating activities | (9,759,160 | ) | – | (9,759,160 | ) | |||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
Cash disposed in deconsolidation | (9,991,684 | ) | – | (9,991,684 | ) | |||||||
Purchase of property and equipment | (809 | ) | – | (809 | ) | |||||||
Net cash used in investing activities of continuing operations | (9,992,493 | ) | – | (9,992,493 | ) | |||||||
Net cash provided by investing activities of discontinued operations | 16,880,792 | – | 16,880,792 | |||||||||
Net cash provided by investing activities | 6,888,299 | – | 6,888,299 | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
Net cash provided by financing activities from continuing operations | – | – | – | |||||||||
Net cash provided by financing activities from discontinued operations | 1,431,974 | – | 1,431,974 | |||||||||
Net cash provided by financing activities from continuing operations | 1,431,974 | – | 1,431,974 | |||||||||
NET CHANGE IN CASH | (1,438,887 | ) | – | (1,438,887 | ) | |||||||
CASH AT BEGINNING OF PERIOD | 1,503,500 | – | 1,503,500 | |||||||||
CASH AT END OF PERIOD | $ | 64,613 | $ | – | $ | 64,613 | ||||||
SUPPLEMENTAL INFORMATION: | ||||||||||||
Interest paid | $ | – | $ | – | $ | – | ||||||
Income taxes paid | $ | 751,630 | $ | – | $ | 751,630 | ||||||
NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||||||
Unrealized gain on investment in AESE | $ | 2,094,690 | $ | (2,094,690 | ) | $ | – | |||||
Recognition of subsidiary equity upon deconsolidation | $ | 8,498,212 | $ | – | $ | 8,498,212 | ||||||
BRAC Redemptions of redeemable preferred stock from trust account | $ | 126,205,985 | $ | – | $ | 126,205,985 | ||||||
BRAC redeemable preferred stock transferred to equity | $ | 15,865,798 | $ | – | $ | 15,865,798 | ||||||
BRAC stock issued in merger | $ | 51,632,255 | $ | – | $ | 51,632,255 | ||||||
BRAC stock issued to settle intercompany debt | $ | 19,300,000 | $ | – | $ | 19,300,000 | ||||||
BRAC loan and accrued interest assumed to settle intercompany debt | $ | 10,992,877 | $ | – | $ | 10,992,877 | ||||||
BRAC stock issued to settle liabilities | $ | 5,917,500 | $ | – | $ | 5,917,500 |
See accompanying notes to consolidated financial statements.
22 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Cautionary Statements
We are including the following discussion to inform our existing and potential security holders generally of some of the risks and uncertainties that can affect our company and to take advantage of the “safe harbor” protection for forward-looking statements that applicable federal securities law affords.
From time to time, our management or persons acting on our behalf may make forward-looking statements to inform existing and potential security holders about our company. All statements other than statements of historical facts included in this report regarding our financial position, business strategy, plans and objectives of management for future operations and industry conditions are forward-looking statements. When used in this report, forward-looking statements are generally accompanied by terms or phrases such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “target,” “plan,” “intend,” “seek,” “goal,” “will,” “should,” “may” or other words and similar expressions that convey the uncertainty of future events or outcomes. Items making assumptions regarding actual or potential future sales, market size, collaborations, trends or operating results also constitute such forward-looking statements.
Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results to differ materially from those set forth in the forward-looking statements include the following:
· | volatility or decline of our stock price; |
· | low trading volume and illiquidity of our common stock, and possible application of the SEC’s penny stock rules; |
· | potential fluctuation in quarterly results; |
· | our failure to collect payments owed to us; |
· | material defaults on monetary obligations owed us, resulting in unexpected losses; |
· | inability to maintain adequate liquidity to meet our financial obligations; |
· | failure to acquire or grow new business; |
· | litigation, disputes and legal claims involving outside parties; |
· | risks related to |
· | risks related to our holdings of AESE common stock. |
We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. Accordingly, results actually achieved may differ materially from expected results in these statements. Forward-looking statements speak only as of the date they are made.
Readers are urged not to place undue reliance on these forward-looking statements. We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, other than as may be required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the United States Securities and Exchange Commission (the “SEC”) which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those expected or projected.
Overview and Outlook
Effective April 2, 2012, we changed our name to Black Ridge Oil & Gas, Inc. Our common stock is still quoted on the OTCQB under the trading symbol “ANFC.”
The Company is focused on acquiring, investing in, and managing the oil and gas assets for ourselves or our partners. We continue to pursue asset acquisitions in all major onshore unconventional shale formations that may be acquired with capital from our existing joint venture partners or other capital providers. Additionally, as the sponsor and manager of Black Ridge Acquisition Corp. (“BRAC”), we are beginning in May of 2017, the Company was focused onBRAC’s efforts identifying and closing a business combination for BRAC. Now that BRAC (renamed Allied Esports Entertainment, Inc. following the merger or “AESE”, and hereafter named as such following the merger) has completed its business combination we will continue to provide additional management services to BRAC through December 31, 2019.
Following the close of the Merger, the Company commenced a strategic review to identify, review and explore alternatives for the Company, including a prospective target business for merger, share exchange, asset acquisition, or other similara business combination. The Company currently owns 2,685,500 shares of BRAC (the “Sponsor Shares”). Of those shares, 537,100 of the Sponsor Shares are subject to distribution rights to officers and directors under the 2018 Management Incentive Plan dated March 6, 2018. Black Ridge is evaluating plans for the remaining Sponsor Shares which could include a distribution of some or all of the Sponsor Share proceeds after expiration of the lock-up agreement on August 9, 2020.
BRAC Proposed Business Combination
On December 19, 2018, BRAC entered into an Agreement and Plan of Reorganization (the “Merger Agreement”) with Black Ridge Merger Sub, Corp., a Delaware corporation and wholly-owned subsidiary of BRAC’s (“Merger Sub”), Allied Esports Entertainment, Inc. (“Allied Esports”), Ourgame International Holdings Ltd. (“Ourgame”), Noble Link Global Limited, a wholly-owned subsidiary of Ourgame (“Noble”), and Primo Vital Ltd., also a wholly-owned subsidiary of Ourgame (“Primo”).
SubjectPursuant to the Agreement, as amended on August 5, 2019, (i) Noble will mergemerged with and into Allied Esports (the “Redomestication Merger”) with Allied Esports beingcontinuing as the surviving entity in such merger and (ii) immediately after the Redomestication Merger, Merger Sub will mergemerged with and into Allied Esports with Allied Esports beingcontinuing as the surviving entity of such merger (the “Transaction Merger” and together with the Redomestication Merger, the “Mergers” or the “Proposed Business Combination”) and becomingbecame a wholly-owned subsidiary of BRAC.BRAC The Mergers closed on August 9, 2019.
Upon consummation of the Mergers (the “Closing”), BRAC will issueissued to the former owners of Allied Esports and WPT Enterprises, Inc. (“WPT”) (i) an aggregate of 11,602,754 shares of BRAC’s common stock and (ii) an aggregate of 3,800,003 warrants to purchase shares of BRAC’s common stock.
In addition to the consideration described above, the former owners of Allied Esports and WPT will beare entitled to receive their pro rata portion of an aggregate of an additional 3,846,153 shares of BRAC’sAESE’s common stock if the last sales price of BRAC’sAESE’s common stock equals or exceeds $13.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for thirty (30) consecutive days at any time during the five (5) year period commencing on the date of the Closing (the “Closing Date”).
The Mergers will resultresulted in BRAC acquiring two of Ourgame’s global esports and entertainment assets, Allied Esports and WPT. Allied Esports is a premier esports entertainment company with a global network of dedicated esports properties and content production facilities. WPT is the creator of the World Poker Tour® (WPT®) – the premier name in internationally televised gaming and entertainment with brand presence in land-based tournaments, television, online and mobile. The proposed transaction will seek to strategically combinecombined the globally recognized Allied Esports brand with the three-pronged business model of the iconic World Poker Tour, featuring in-person experiences, multiplatform content and interactive services, to leverage the high-growth opportunities in the global esports industry.
Consummation of the transactions contemplated by the Merger Agreement is subject to customary conditions and covenants of the respective parties, including approval of BRAC’s stockholders and BRAC having cash on hand of at least $80 million. Further information regarding the Proposed Business Combination, the proposedcombined company following consummation of the Business Combination and the risks related to the business of the combined company following consummation of the Proposed Business Combination and the risks related to the proposed business of the combined company following consummation of the Proposed Business Combination can be found in BRAC’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 20, 2018, the preliminary proxy statement filed by BRAC with the Securities and Exchange Commission on February 15, 2019 (and subsequently amended on April 29, 2019)2019, May 20, 2019 and June 5, 2019 and the definitive proxy statement to be filed by BRAC with the Securities and Exchange Commission. Unless otherwise indicated, the information in this Report assumes BRAC will not consummate the Proposed Business Combination and will be forced to seek an alternative target with which to consummate an initial business combination.Commission on June 12, 2019.
The Extension Meeting
On July 9, 2019, BRAC held a special meeting of its stockholders (the “Meeting”). At the Meeting, BRAC’s stockholders considered a proposal to adopt and approve an amendment to BRAC’s amended and restated certificate of incorporation (the “Charter”) to extend the date that BRAC has to consummate a business combination (the “Extension”) to August 10, 2019. The amendment was approved by the stockholders and filed with the Secretary of State of the State of Delaware on July 9, 2019.
In connection with this vote, the holders of 9,246,727 shares of BRAC’s common stock properly exercised their right to convert their shares into cash at a conversion price of approximately $10.29 per share resulting in $95,125,574 in Trust Account assets being distributed back to shareholders. In connection with the Extension, BROG, loaned $30,000 to BRAC to be placed in the Trust Account for the benefit of the public shares that were not converted. The loan is non-interest bearing and is evidenced by a promissory note issued by BRAC on the same date. The loan was repaid by BRAC on August 12, 2019.
Amendment to the Business Combination Agreement
On August 5, 2019, BRAC entered into an amendment (the “Amendment”) to the Business Combination Agreement. The Amendment reduced the closing condition originally contained in the Business Combination Agreement requiring BRAC to have minimum cash on hand following the proper exercise of conversion rights by the holders of public shares from at least $80,000,000 to $22,000,000. This condition was waived by Ourgame prior to the close of the Business Combination. The Business Combination Agreement also originally provided for BRAC to repay $35,000,000 of indebtedness of Allied Esports and the World Poker Tour owed to Ourgame in cash at the closing of the transactions (the “Closing”). Pursuant to the Amendment, the parties agreed that instead of paying the full $35,000,000 in cash at the Closing, BRAC would (i) assume $10,000,000 of the debt obligations of Ourgame and Noble (including an additional $1,200,000 of accrued interest) and (ii) repay Ourgame the remaining balance of $23,800,000 by paying $3,500,000 in cash to Ourgame and its designees, issuing to Ourgame and its designees 2,928,679 shares of BRAC’s common stock and Ourgame retaining $1,000,000 of the proceeds of such loans to pay its transaction expenses incurred in the Merger. In connection with entering into the Amendment, BROG agreed to transfer an aggregate of 600,000 shares of BRAC’s common stock held by it to Ourgame.
In connection with the execution of the Amendment, the parties entered into an amendment and acknowledgment agreement (“Acknowledgment Agreement”) whereby the terms of the previously issued convertible notes (“Notes”) of Allied Esports and WPT (collectively “AEII/WPT”) whereby bridge holders provided $14 million to be used for the operations of AEII/WPT were amended. Pursuant to the Acknowledgement Agreement, the bridge holders have agreed to defer repayment of the Notes to one year and two weeks following the Closing (the “Maturity Date”). In consideration of agreeing to the deferred repayment, the bridge holders will be paid an additional six months of interest (i.e., a total of 18 months of interest) to the extent any bridge holder elects not to convert their Note to equity. BRAC agreed to assume the debt under the Notes as part of the mergers contemplated by the Agreement, and agreed that the debt will be secured by all the assets of BRAC following the Closing. BROG, as the Sponsor, has also agreed that it will not make any further transfer of its securities of BRAC, subject to certain exceptions, until the debt is repaid. The Notes are convertible at any time by a holder between the Closing and the Maturity Date at the “Conversion Price.” The “Conversion Price” is the lesser of $8.50 per share or the price at which shares are issued to Ourgame or its affiliates in connection with the mergers.
In July and August 2019, BRAC and BROG also entered into several share purchase agreements (the “Purchase Agreements”) with several parties (collectively referred to as the “Purchasers”). Pursuant to the Purchase Agreements, the Purchasers agreed to purchase an aggregate of $18,000,000 of shares of BRAC’s common stock in open market or privately negotiated transactions. If the Purchasers are unable to purchase the full $18,000,000 of shares of common stock in open market or privately negotiated transactions, BRAC will issue to the Purchasers newly issued shares at the Closing at a per-share price equal to the per-share amount held in BRAC’s trust account (currently approximately $10.30 per share), and having an aggregate value equal to the difference between $18,000,000 and the dollar amount of shares purchased by them in the open market or in privately negotiated transactions. One of the agreements also contains certain restrictions on the use of cash from the purchase. At the Closing, BRAC agreed to issue to the Purchasers 1.5 shares of common stock for every 10 shares purchased by them under the Purchase Agreements. Additionally, BROG agreed to transfer an aggregate of 720,000 shares held by it of BRAC common stock to the Purchasers. Pursuant to the Purchase Agreements, BRAC was required to file a registration statement with the SEC as promptly as practicable following Closing to register the resale of any securities purchased by the Purchasers that are not already registered and cause such registration statement to become effective as soon as possible. The registration statement was filed by AESE on September 20, 2019 and became effective on October 3, 2019. The Purchasers included a $3 million investment from Lyle Berman, a member of the board of directors of both BRAC and BROG and the largest shareholder of BROG. Additionally, $5 million will be held in an escrow account and its usage will be limited to specific capital projects.
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Closing of the Business Combination
The Business Combination was closed on August 9, 2019. In connection with the closing, the holders of 3,015,124 shares of the Company’s common stock properly exercised their right to convert their shares into cash at a conversion price of approximately $10.31 per share resulting in $31,080,410 in Trust Account assets being distributed back to shareholders. Additionally, the Purchasers fulfilled their purchase commitments purchasing approximately $12.1 million of BRAC’s shares in the open market or through privately negotiated transactions and directly purchasing 479,546 additional shares of BRAC common stock for $4.9 million directly from BRAC.
Commensurate with the Business Combination BROG converted $600,000 of convertible loans to BRAC into 60,000 units (comprised 66,000 shares after conversion of stock rights and 60,000 warrants with terms similar to the IPO warrants). The remaining $150,000 in convertible loans were returned in cash by BRAC to BROG. Additionally, the underwriter agreed to an amendment to its agreement, modifying its payment due at the close of the Business Combination to $4 million, $2 million in cash and $2 million in equity. Other advisors used in the transaction agreed to accept payment for $3.8 million in contingent fees in BRAC equity.
Upon, the close of the Business Combination, BROG owned 2,685,500 shares of BRAC stock, representing approximately 11.6% of the outstanding shares of BRAC. As per the Black Ridge Oil & Gas, Inc. 2018 Management Incentive Plan, 20% of the shares, or 537,100 shares, owned by BROG are committed to employees and directors of the Company. Additionally, as the conditions warranting BROG’s treatment of BRAC as a VIE have been eliminated, BRAC will no longer be accounted for as a VIE and consolidated for financial statement reporting purposes from the date of the closing of the Business Combination forward.
Going Concern Uncertainty
As of MarchSeptember 30, 2019, the Company had a cash balance of $64,613 and total working capital of negative $2,620,633. The Company’s management consulting agreement with BRAC calls for management fees of $313,316 from October 1, 2019 through December 31, 2019 ourand does not continue into 2020. Based on projections of cash balance was $826,525. We will continue to have general and administrative expenses to remain a public company and continue with ourexpenditures in the Company’s current business plan. Theplan, the cash on hand would be insufficient to cover our current cash needsfund the Company’s general and administrative expenses over the next year.
We continue to pursue sources of additional capital through various financing transactions or arrangements, including joint venturing of projects, equity or debt financing or other means. We may not be successful in identifying suitable funding transactions in a sufficient time period or at all, and we may not obtain the capital we require by other means. If we do not succeed in raising additional capital, our resources may not be sufficient to fund our business.
The report of the Company’s independent registered public accounting firm that accompanies its audited consolidated financial statements in thisthe Company’s Annual Report on Form 10-K contains an explanatory paragraph regarding the substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of the going concern uncertainty.
Business
The Company is focused on acquiring, investing in, and managing the oil and gas assets for our partners. We continue to pursue asset acquisitions in all major onshore unconventional shale formations that may be acquired with capital from our existing joint venture partners or other capital providers. Additionally, as the sponsor and manager of Black Ridge Acquisition Corp. (“BRAC”), we will be focused onBRAC’s efforts to identify a prospective target business in the energy or energy-related industries with an emphasis on opportunities in the upstream oil and gas industry in North America.
Operating Highlights
General and administrative expenses were $697,385 for the three month period ended March 31, 2019 as compared to $642,396 in the three month period ended March 31, 2018.
Results of Operations for the Three Months Ended March 31,September 30, 2019 and 2018.
The following table summarizes selected items from the statement of operations for the three months ended March 31,September 30, 2019 and 2018, respectively.
Three Months Ended | Three Months Ended | |||||||||||||||||||||||
March 31, | Increase / | September 30, | Increase / | |||||||||||||||||||||
2019 | 2018 | (Decrease) | 2019 | 2018 | (Decrease) | |||||||||||||||||||
Management fee income | $ | – | $ | – | $ | – | $ | 153,279 | $ | – | $ | 153,279 | ||||||||||||
Total revenues: | – | – | – | 153,279 | – | 153,279 | ||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
General and administrative expenses: | ||||||||||||||||||||||||
Salaries and benefits | 318,110 | 319,740 | (1,630 | ) | 279,621 | 285,839 | (6,218 | ) | ||||||||||||||||
Stock compensation | 27,931 | 85,833 | (57,902 | ) | ||||||||||||||||||||
Stock and deferred compensation | 2,836,920 | 77,901 | 2,759,019 | |||||||||||||||||||||
Professional services | 101,060 | 84,942 | 16,118 | 40,287 | 39,348 | 939 | ||||||||||||||||||
Other general and administrative expenses | 250,284 | 151,881 | 98,403 | 69,157 | 58,289 | 10,868 | ||||||||||||||||||
Total general and administrative expenses | 697,385 | 642,396 | 54,989 | 3,225,985 | 461,377 | 2,764,608 | ||||||||||||||||||
Depreciation and amortization | 443 | 2,558 | (2,115 | ) | 131 | 2,535 | (2,404 | ) | ||||||||||||||||
Total operating expenses | 697,828 | 644,954 | 52,874 | 3,226,116 | 463,912 | 2,762,204 | ||||||||||||||||||
Net operating loss | (697,828 | ) | (644,954 | ) | (52,874 | ) | (3,072,837 | ) | (463,912 | ) | (2,608,925 | ) | ||||||||||||
Other income (expense) | 816,119 | 475,797 | 340,222 | |||||||||||||||||||||
Gain on deconsolidation of subsidiary | 26,322,687 | – | 26,322,687 | |||||||||||||||||||||
Merger incentive expense | (5,874,000 | ) | – | (5,874,000 | ) | |||||||||||||||||||
Settlement income | – | 2,250,000 | (2,250,000 | ) | ||||||||||||||||||||
Settlement expense | – | (112,500 | ) | 112,500 | ||||||||||||||||||||
Other income | – | 200 | (200 | ) | ||||||||||||||||||||
Gain on investment in Allied Esports Entertainment, Inc. | 2,094,690 | – | 2,094,690 | |||||||||||||||||||||
Total other income (expense) | 22,543,377 | 2,137,700 | (20,405,677 | ) | ||||||||||||||||||||
Gain (loss) before provision for income taxes | 118,291 | (169,157 | ) | 287,448 | ||||||||||||||||||||
Net profit from continuing operations before provision for income taxes | 19,470,540 | 1,673,788 | 17,796,752 | |||||||||||||||||||||
Provision for income taxes | 186,579 | 94,667 | 91,912 | – | – | – | ||||||||||||||||||
Net loss | (68,288 | ) | (263,824 | ) | (195,536 | ) | ||||||||||||||||||
Net profit from continuing operations, net of tax | 19,470,540 | 1,673,788 | 17,796,752 | |||||||||||||||||||||
Net profit (loss) from discontinued operations | (8,152,165 | ) | 442,487 | (8,594,652 | ) | |||||||||||||||||||
Net profit before non-controlling interest | 11,318,375 | 2,116,275 | 9,202,100 | |||||||||||||||||||||
Less: Net income attributable to redeemable non-controlling interest | (602,049 | ) | (369,205 | ) | (232,844 | ) | (142,919 | ) | (513,240 | ) | (370,321 | ) | ||||||||||||
Net loss attributable to Black ridge Oil & Gas, Inc. | $ | (670,337 | ) | $ | (633,029 | ) | $ | (37,308 | ) | |||||||||||||||
Net income attributable to Black Ridge Oil & Gas, Inc. | $ | 11,175,456 | $ | 1,603,035 | $ | 9,572,421 |
Management fee revenue
The Company earned management fees of $153,279 during the three months ended September 30, 2019 from its management agreement with BRAC subsequent to the Mergers. The Company didn’t earn any management fees during the three months ended September 30, 2018.
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General and administrative expenses
Salaries and benefits
Salaries and benefits for the three months ended September 30, 2019 were $279,621, compared to $285,839 for the three months ended September 30, 2018, a decrease of $6,218, or 2%. Base salaries were consistent between the two periods.
Stock-based compensation
Stock-based compensation expense for the three months ended September 30, 2019 was $2,836,920, compared to $77,901 for the three months ended September 30, 2018, an increase of $2,759,019 or 3,542%. Included in the expense for the three months ended September 30, 2019, was $2,809,033 of expense related to the 2018 Management Incentive Plan (the “2018 Plan”).
Professional services
General and administrative expenses related to professional services were $40,287 for the 2019 period, compared to $39,348 for the 2018 period, an increase of $939, or 2%. Professional services were generally consistent between the periods.
Other general and administrative expenses
Other general and administrative expenses for the three months ended September 30, 2019 were $69,157, compared to $58,289 for the three months ended September 30, 2018, an increase of $10,868, or 19%. The increase is attributable to increased insurance costs and meals and entertainment expenses.
Depreciation
Depreciation expense for the three months ended September 30, 2019 was $131, compared to $2,535 for the three months ended September 30, 2018.
Other income (expense)
In the three months ended September 30, 2019, other income was $22,543,377 consisting of the gain upon deconsolidation of BRAC of $26,322,687 and an offsetting merger incentive expense of $5,874,000 to recognize the cost related to transferring shares of AESE stock to the former owners of Allied Esports and WPT and other investors as incentive to participate in the merger, and a gain of $2,094,690 on the investment in Allied Esports Entertainment, Inc. pursuant to the change in fair market value the AESE shares.
In the three months ended September 30, 2018, other income was $2,137,700 consisting primarily of net settlement income of $2,137,500 from the final settlement of the contingent portion of a 2012 settlement agreement.
Provision for income taxes
The Company had no income tax expense in the 2019 or 2018 periods, as the Company continues to reserve against any deferred tax assets due to the uncertainty of realization of any benefit.
Net profit (loss) from discontinued operations
Net profit (loss) from discontinued operations relates to the income and expenses of BRAC during the periods prior to deconsolidation. Net profit (loss) from discontinued operations consisted of a loss of $8,152,165, compared to a profit of $442,487, a difference of $8,594,652. During the 2019 period, there were contingent closing costs from BRAC’s underwriter and other investment bankers involved in the merger of $7,917,500. Additionally, interest from investments in the trust account for the benefit of potential redeeming shareholders was $676,147 in 2018, but decreased to $145,367 in 2019, as the trust account redemptions and the withdrawal of the remaining assets at the time of the Mergers shortened the period and decreased the balances on which interest was earned. Other legal, audit and consulting costs were higher during the 2019 period due to numerous SEC filings in the periods leading up to the merger.
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Results of Operations for the Nine Months Ended September 30, 2019 and 2018.
The following table summarizes selected items from the statement of operations for the nine months ended September 30, 2019 and 2018, respectively.
Nine Months Ended | ||||||||||||
September 30, | Increase / | |||||||||||
2019 | 2018 | (Decrease) | ||||||||||
Management fee income | $ | 153,279 | $ | – | $ | 153,279 | ||||||
Total revenues: | 153,279 | – | 153,279 | |||||||||
Operating expenses: | ||||||||||||
General and administrative expenses: | ||||||||||||
Salaries and benefits | 910,191 | 914,166 | (3,975 | ) | ||||||||
Stock compensation | 2,892,738 | 244,664 | 2,648,074 | |||||||||
Professional services | 79,978 | 80,001 | (23 | ) | ||||||||
Other general and administrative expenses | 185,035 | 194,530 | (9,495 | ) | ||||||||
Total general and administrative expenses | 4,067,942 | 1,433,361 | 2,634,581 | |||||||||
Depreciation and amortization | 754 | 7,650 | (6,896 | ) | ||||||||
Total operating expenses | 4,068,696 | 1,441,011 | 2,627,685 | |||||||||
Net operating loss | (3,915,417 | ) | (1,441,011 | ) | (2,474,406 | ) | ||||||
Other income (expense) | ||||||||||||
Gain on deconsolidation of subsidiary | 26,322,687 | – | 26,322,687 | |||||||||
Merger incentive expense | (5,874,000 | ) | – | (5,874,000 | ) | |||||||
Settlement income | – | 2,250,000 | (2,250,000 | ) | ||||||||
Settlement expense | – | (112,500 | ) | 112,500 | ||||||||
Other income | 51 | 940 | (889 | ) | ||||||||
Gain on investment in Allied Esports Entertainment, Inc. | 2,094,690 | – | 2,094,690 | |||||||||
Total other income (expense) | 22,543,428 | 2,138,440 | 20,404,988 | |||||||||
Net profit from continuing operations before provision for income taxes | 18,628,011 | 697,429 | 17,930,582 | |||||||||
Provision for income taxes | – | – | – | |||||||||
Net profit from continuing operations, net of tax | 18,628,011 | 697,429 | 17,930,582 | |||||||||
Net profit (loss) from discontinued operations | (7,421,050 | ) | 1,078,489 | (8,499,539 | ) | |||||||
Net profit before non-controlling interest | 11,206,961 | 1,775,918 | 9,431,043 | |||||||||
Less: Net income attributable to redeemable non-controlling interest | (1,332,529 | ) | (1,337,487 | ) | 4,958 | |||||||
Net income attributable to Black Ridge Oil & Gas, Inc. | $ | 9,874,432 | $ | 438,431 | $ | 9,436,001 |
Management Fee Revenue
The Company earned no management fees during the threenine months ended March 31,September 30, 2019, andfrom its management agreement with BRAC subsequent to the Mergers. The Company didn’t earn any management fees during the nine months ended September 30, 2018.
General and Administrative Expenses
Salaries and benefits
Salaries and benefits for the threenine months ended March 31,September 30, 2019 were $318,110$910,191, compared to $319,740$914,166 for the threenine months ended March 31,September 30, 2018, a decrease of $1,630,$3,975, or less than 1%. Base salaries were consistent between the two periods.
StockStock-based compensation
StockStock-based compensation expense for the threenine months ended March 31,September 30, 2019 was $27,931$2,892,738, compared to $85,833$244,664 for the threenine months ended March 31,September 30, 2018, an increase of $2,648,074 or 1,082%. Included in the expense for the nine months ended September 30, 2019, was $2,809,033 of expense related to the 2018 Management Incentive Plan (the “2018 Plan”). Amortization of stock options decreased by $160,959, as a decreasesignificant group of $57,902 or 67%. No new stock compensation awards were granted in 2019 or 2018 and in 2019 awards from 2014, which had higher valuations relative to awards in more recent years,options became fully amortized.amortized at the end of 2018.
Professional services
General and administrative expenses related to professional services were $101,060$79,978 for the 2019 period, compared to $84,942$80,001 for the 2018 period, an increase of $16,118$23, or 19%less than 1%. The increase primarily relates to increased accounting and legalProfessional services acquisition related costs for BRAC’s proposed acquisition.were largely unchanged between the periods.
Other general and administrative expenses
Other general and administrative expenses for the threenine months ended March 31,September 30, 2019 were $250,284$185,035, compared to $151,881$194,530 for the threenine months ended March 31,September 30, 2018, an increasea decrease of $98,403,$9,495, or 65%5%. The increasedecrease is attributable to public relations costs, travel costs and insurance costs, as diminished by increased travelmeals and meals as well as other service related to the BRAC’s proposed business combination including filing fees, investor relations and stock services.entertainment.
Depreciation
Depreciation expense for the threenine months ended March 31,September 30, 2019 was $443,$754, compared to $2,558$7,650 for the threenine months ended March 31,September 30, 2018.
Other income (expense)
In the threenine months ended March 31,September 30, 2019, other income was $816,119$22,543,428, consisting primarily of activitythe gain upon deconsolidation of BRAC of $26,322,687 and an offsetting merger incentive expense of $5,874,000 to recognize the cost related to transferring shares of AESE stock to the former owners of Allied Esports and WPT and other investors as incentive to participate in the restricted trust account including interest incomemerger, and a gain of $811,335 and unrealized gains of $4,733.$2,094,690 on the investment in Allied Esports Entertainment, Inc. pursuant to the change in fair market value the AESE shares.
In the threenine months ended March 31,September 30, 2018, other income was $475,797$2,138,440, consisting primarily of activity in the restricted trust account including interestnet settlement income of $417,712 and unrealized gains$2,137,500 resulting from the final settlement of $57,914.the contingent portion of a 2012 settlement agreement.
Provision for Income Taxes
We had $186,579 and $94,667 of tax expense for the three months ended March 31, 2019 and 2018, respectively, representing the tax expense associated with BRAC, which is a stand-alone entity for tax purposes. The Company had no income tax expense for BROG in the 2019 or 2018 periods, as the Company continues to reserve against any deferred tax assets of BROG due to the uncertainty of realization of any benefit.
Net profit (loss) from discontinued operations
Net profit (loss) from discontinued operations relates to the income and expenses of BRAC during the periods prior to deconsolidation. Net profit (loss) from discontinued operations consisted of a loss of $7,421,050, compared to a profit of $1,078,489, a difference of $8,499,539. During the 2019 period, there were contingent closing costs from BRAC’s underwriter and other investment bankers involved in the merger of $7,917,500. Other legal, audit and consulting costs were higher during the 2019 period due to numerous SEC filings in the periods leading up to the merger. Offsetting the additional costs, interest from investments in the trust account for the benefit of potential redeeming shareholders was $1,722,249 in 2018, but increased to $1,780,992 in 2019 as interest rates on investments were higher, offsetting trust account redemptions and the withdrawal of the remaining assets at the time of the Mergers that shortened the period and decreased the balances on which interest was earned.
Liquidity and Capital Resources
The following table summarizes our total current assets, liabilities and working capital at March 31,September 30, 2019 and December 31, 2018, respectively.
March 31, | December 31, | September 30, | December 31, | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Current Assets | $ | 927,003 | $ | 1,557,448 | $ | 270,646 | $ | 1,557,448 | ||||||||
Current Liabilities | $ | 790,064 | $ | 659,351 | $ | 2,891,279 | $ | 659,351 | ||||||||
Working Capital | $ | 136,939 | $ | 898,097 | $ | (2,620,633 | ) | $ | 898,097 |
As of March 31,September 30, 2019, we had positivenegative working capital of $136,939.$2,620,033. Liabilities of BRAC$2,809,033 related to the 2018 Management Incentive Plan are included in current liabilities as of March 31,September 30, 2019, for current income taxes and franchise fees totaling $686,789 maywhich will be paidsettled in common stock from interest earned on the Trust Account assets.Company’s Investment in Allied Esports Entertainment, Inc., a long-term asset.
The following table summarizes our cash flows during the threenine month periods ended March 31,September 30, 2019 and 2018, respectively.
Nine Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2018 | 2019 | 2018 | ||||||||||||||
Net cash used in operating activities | $ | (771,799 | ) | $ | (500,950 | ) | $ | (9,759,160 | ) | $ | 473,366 | |||||
Net cash provided by investing activities | 94,824 | – | 6,888,299 | 187,773 | ||||||||||||
Net cash provided by financing activities | – | – | 1,431,974 | 450 | ||||||||||||
Net change in cash and cash equivalents | $ | (676,975 | ) | $ | (500,950 | ) | $ | (1,438,887 | ) | $ | 661,589 |
Net cash used in operating activities was $771,799 and $500,950$9,759,160 for the threenine months ended March 31,September 30, 2019, and net cash provided by operating activities was $473,366 for the nine months ended September 30, 2018, respectively, a period over period increasedecrease of $270,849.$10,232,526. The increasedecrease was primarily due to net settlement income $2,137,500 received in 2018, and an increase of $54,989$6,342,561 in general and administrative expenses and changesnet losses in working capital accounts.discontinued operations of BRAC due primarily to the recognition of $7,917,500 of contingent fees upon BRAC’s business combination. Changes in working capital from continuing operating activities resulted in an increasea decrease in cash of $82,823$181,718 in the threenine months ended March 31,September 30, 2019, as compared to an increasea decrease in cash of $133,463$11,218 for the same period in the previous year, the year over year decrease of $50,640 primarily driven by changes in accounts payable and offset by changes in income taxes payable between periods.year.
Net cash provided by investing activities was $94,824were $6,888,299 and $187,773 for the threenine months ended March 31,September 30, 2019 primarilyand 2018, respectively. In 2019, cash disposed upon deconsolidation resulted in a decrease of $9,992,493. In the 2019 and 2018 periods, cash provided from proceedsdiscontinued operations of withdrawals$16,880,792 and $187,773, respectively, was the result of 95,633transfers and withdrawals from the Trust Account to payAccount.
Net cash provided by financing activities was $1,431,974 and $450 for income taxes and franchise fees. We had no investingthe nine months ended September 30, 2019. All of the 2019 activity was the result of activities in the 2018 period.
We had no financing activities in either the 2019 period or the 2018 period.discontinued operations of BRAC.
Satisfaction of our cash obligations for the next 12 months
As of March 31,September 30, 2019, our balance of cash and cash equivalents was $826,525.$64,613. Our plan for satisfying our cash requirements for the next twelve months is through additional management service fees generated from our current management agreement with AESE through the end of 2019, management fees from new partners and additional financing in the form of equity or debt as needed.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of financial conditions and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements required us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates.
Our critical accounting policies are more fully described in Note 2 of the footnotes to our financial statements appearing elsewhere in this Form 10-Q, and Note 2 of the footnotes to the financial statements provided in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rate Risk
We currently have no long-term debt, but should we take on debt in the future changes in interest rates could impact results of operations and cash flows.
ITEM 4. CONTROLS AND PROCEDURES.
We are restating our previously reported financial information as of September 30, 2019 to correct the presentation of unrealized losses on our investment in Allied Esports Entertainment, Inc. in accordance with Accounting Standards Update No. 2016-01 –Financial Instruments – Overall (Subtopic 825-10), as disclosed in Note 17 of this report. Specifically, unrealized losses that were originally separately presented as other comprehensive income should have been included in our net loss.
We evaluated our investment in AESE shares of common stock by determining the fair market value of the shares, using the closing traded price as traded on the Nasdaq stock exchange. The fair market value was then measured against the carrying value, as reported for the prior period, resulting in a gain or loss, which had previously been recognized in other comprehensive income, as unrealized. The adoption of ASU 2016-01, changed the presentation of the gain or loss on equity securities from other comprehensive income to ordinary income, as presented in this Form 10-Q/A. Following our conclusion to restate our financial statements, we initiated a comprehensive review of all our determinations and documentation related to accounting for our investment in Allied Esports Entertainment, Inc., as well as related processes and procedures.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
32 |
Our management, under the direction of our Chief Executive Officer and Interim Chief Financial Officer, who is one in the same, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such terms are defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31,September 30, 2019. As part of such evaluation, management considered the matters discussed below relating to internal control over financial reporting. Based on this evaluation our management, including theThe Company’s Chief Executive Officer and Interim Chief Financial Officer, has concluded that the Company’s disclosure controls and procedures were not effective as of MarchSeptember 30, 2019, as a result of the identified material weakness in internal control over financial reporting, the nature of which is summarized below.
We did not have effective controls to provide reasonable assurance as to the appropriate selection and implementation of accounting methods with respect to presentation of unrealized losses on our investment in Allied Esports Entertainment, Inc. We lacked adequate technical expertise to ensure the proper application, at inception and on an ongoing basis, of the criteria for reporting investments in equity securities pursuant to ASU 2016-01. This material weakness resulted in our restatement of the consolidated financial statements for the year ended December 31, 2019, to ensure thatand for the information required to be disclosed in our Exchange Act reports was recorded, processed, summarized and reported on a timely basis.interim period ending September 30, 2019.
To remediate the material weakness described above and enhance our internal control over financial reporting, subsequent to the filing of this Form 10-Q/A, management will implement the following changes:
· | Improve training, education and understanding of requirements for all relevant personnel. |
· | Quarterly consultation with a third-party independent expert. |
· | Enhanced reviews whenever there is a change in accounting or significant operational activities. |
There have been nochanges in the Company’s internal control over financial reporting during the threenine month period ended March 31,September 30, 2019 that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
Other than routine legal proceedings incident to our business, there are no material legal proceedings to which we are a party or to which any of our property is subject.
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
None.
Exhibit | Description | |
3.1 | Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Form 8-K filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on December 12, 2012) | |
3.2 | Bylaws (incorporated by reference to Exhibit 3.2 of the Form 8-K filed with the Securities and Exchange Commission by Black Ridge Oil & Gas, Inc. on December 12, 2012) | |
Promissory Note dated | ||
10.3 | ||
10.4 | Employment Agreement dated September 24, 2019, by and among Ken DeCubellis and Black Ridge Oil & Gas, Inc. (incorporated by reference to Exhibit 10.4 of the Form 10-Q filed with the Securities and Exchange Commission by Black Ridge Oil and Gas, Inc. on November 14, 2019) | |
31.1* | Section 302 Certification of Chief Executive Officer | |
31.2* | Section 302 Certification of Interim Chief Financial Officer | |
32.1* | Section 906 Certification of Chief Executive Officer | |
32.2* | Section 906 Certification of Interim Chief Financial Officer | |
101.INS* | XBRL Instance Document | |
101.SCH* | XBRL Schema Document | |
101.CAL* | XBRL Calculation Linkbase Document | |
101.DEF* | XBRL Definition Linkbase Document | |
101.LAB* | XBRL Labels Linkbase Document | |
101.PRE* | XBRL Presentation Linkbase Document | |
*Filed herewith
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BLACK RIDGE OIL & GAS, INC. | ||
Dated: May | By: | /s/Kenneth DeCubellis |
Kenneth DeCubellis, Chief Executive Officer (Principal Executive Officer) | ||
Dated: May | By: | /s/ |